5 Analysts Rate “BUY” on KBANK following the New Bancassurance Agreement with MTL

5 analysts have given a “BUY” recommendation on Kasikornbank Public Company Limited (KBANK) with the highest target price of 182 baht following the signing of a new 10-year Bancassurance Agreement with MTL for the distribution of insurance products worth 12.7 billion baht.

Kasikornbank Public Company Limited (KBANK) announced that on July 2, 2021, the company has entered into the Bancassurance Agreement with Muang Thai Life Assurance Public Company Limited (MTL) for offering and/or distribution of life insurance products of MTL in an exclusive manner via distribution channels of KBank and its five subsidiaries, for a period of 10 years, which is expected to come into effect from January 1, 2022.

Under the 10-year Bancassurance Agreement, KBANK will derive: (a) the Exclusivity Fee of  12 billion baht which will be paid in a single payment or in two installments as agreed upon in the Bancassurance Agreement, whereby such fee will be gradually recognized by KBANK as income throughout the term of the Bancassurance Agreement; (b) the Performance Bonus; (c) the Commission; and (d) other income per normal business practices.

KGI Securities (Thailand) (KGI) has given an “Outperform” rating on KBANK with a given target price of 182 baht per share, believing that the new bancassurance agreement (BA) with MTL does not seem to change KBANK’s income pattern in the short term. In 2020, net profit contribution from MTL accounted for around 10% of KBANK’s bottom line and has been on a downward trend as MTL has lost market share for three years. Upside for KBANK will depend on market share improving and the change in MTL’s insurance product mix gearing toward high margin. 

KGI expects KBANK to report 2Q21 earnings of 8.1 billion baht ((24% QoQ, +272% YoY), with lower FVTPL and rising LLP to dominate QoQ and YoY growth. Excluding provisioning expenses and FVTPL, PPOP should decline 2% QoQ and rise 2% YoY. Though KBANK’s share price corrected on concern about the domestic economy, assistance from the Bank of Thailand (BoT) through the rest of the year will help the bank manage NPLs and credit cost. With an undemanding valuation at PE 8x and PBV at 0.6x, nearly (2SD, and ROE assumption around 8%, KBANK still deserves PBV at 0.9x. 

Meanwhile, Krungsri Securities (KSS) has given a “BUY” recommendation with a target price of 162 baht, estimating earnings upside from the aforementioned agreement by 2% since the payment will be amortized over 10 years.

KSS assesses this agreement would have only modest positive impact to the  bank’s  bottom-line. But MTL (in which KBANK has 38% stake) would also book higher non-interest expenses for the same amount. This means KBANK would gain only around 62% of annual payment topped up with annual performance bonus after tax on consolidated net profits or potential upside incurred from agreement in our FY22 earnings estimation just around 2%.

KBANK is believed to set aside more provisions in 2Q21 following the latest Covid-19 outbreak. However, a lower-than-expected provision charge would suggest the current loss cushion is sufficient for the bank to weather the pandemic. Hence,  KBANK could enjoy not only stronger loan growth when the economy starts to recover later this year, but the improving outlook would also mean provision charges could continue to normalize.

Analysts	Recommendation	Target Price
KGI Thailand	BUY	182 baht
KTBST	BUY	177 baht
Krungsri	BUY	162 baht
Maybank Kim Eng	BUY	160 baht
Trinity	BUY	160 baht