Equity Analysis /

Kenya Commercial Bank: KCB GROUP: Q3 17 – Restated numbers are above our expectations

    Faith Mwangi
    Faith Mwangi

    Equity Research Analyst, Financials (East Africa)

    Tellimer Research
    12 November 2017
    Published byTellimer Research
    On restated numbers, KCB Group recorded a 5% yoy increase in EPS to KES6.56. The restatement, according to management, was due to recoveries of cKES1bn which were present in the earlier declared Q3 16 but excluded in the restated numbers. Even after accounting for this, there was still a difference in the numbers, which management said it would clarify on its conference call. The restatement saw the new numbers come in 10% lower than the previously declared results, but they are above our expectations. We are happy with continued net interest margin preservation and strong non-interest revenue performance.
    Reiterate BUY with a target price of KES45.80. The bank has delivered above our expectations, especially on margin preservation. In addition, the bank trades at a forward P/B of 1.3x which is in line with sector average of 1.34x. Our TP suggests an ETR of 19% hence we reiterate our BUY.
    KCB now outperforming Equity Group on net interest margin. KCB’s net interest margin was stable at 9.1%. With cost of funds maintained at 1.9% since the rate cap was implemented, KCB has overtaken Equity Group on net interest margin. Additionally, we are happy to see the bank’s loan yields rise for the past two quarters despite the aggressive loan book growth (+15% yoy). We are confident that KCB Group can retain this balance into Q4 17 and we expect management to hit its FY17 target of 8.5-9.0%.
    We believe the mobile money market is large enough for all players including telcos. Mobile recorded positive performance with transactions per customer rising to 7.7 per month, from 5.8 in Q3 16. The channel has officially overtaken point of sales to be the highest revenue generating channel. In our view, this income stream is sustainable.