• Maintain FY18 financial targets but have concerns over non-NII growth; credit cost should peak in 2017 and drop in 2018
• 4Q17 net profit fell 44% yoy to Bt5.7bn on higher OPEX and credit cost; cut FY18-19F earnings by 2-4% after reflecting weaker than expected non-NII
• NEUTRAL, cut TP to Bt230, implying 13.3x FY18F P/E and 1.5x P/BV; expect ROE to remain low at 11-12% in FY17-19

Expect weak revenue growth but improving asset quality in 2018

We had mixed feedback from the meeting with management on Friday. They assured credit cost had peaked at 239bp in 2017 and are targeting not more than 185bp in 2018. Based on its NPL resolution plan, NPL coverage and ratio should stay be stable yoy in 2018. On a less positive note, NIM should slip as corporate loans would grow faster than SME and retail loans this year. We remain cautious of top line growth, especially non-NII given weaker insurance income and transactional fees. The bank guided PromptPay adoption is much faster than expected; PromptPay fees account for about 7% of non-NII. Cost-to-income ratio should be stable yoy at c.42% with good cost control.

Cut FY18-19F profit by 2-4% after reflecting weaker non-NII in 4Q17

4Q17 net profit fell 44% yoy and 40% qoq to Bt5.7bn due to rising OPEX (+8% yoy) and credit cost (+69% yoy). Non-NII also fell 3% yoy and 10% qoq on lower net insurance income. The weak 4Q17 results led FY17 EPS to shrink 15% yoy to Bt14.3/sh. Net insurance income should continue to drop given more intense competition and tighter regulations. A weak top line growth should lead to a disappoint PPoP growth of 2% yoy in FY18F. However, lower credit cost should more than offset weaker NIM and flat non-NII. Hence, we expect EPS to grow 21% in FY18F and 14% in FY19F. 

NEUTRAL, lowered TP to Bt230; prefer BBL, SCB and TMB

We expect ROE to remain weak at 11-12% in FY18-19F given flat non-NII. We recommend to accumulate KBANK at below Bt220. For now, we prefer SCB because it is trading at 16% discount to KBANK on FY18F PE. BBL and TMB remain our top picks given stronger earnings and non-NII growth than peers.