KCB Group Plc (NSE: KCB) 3Q18 Earnings Note
KCB Group Plc (NSE: KCB) announced better-than-expected 3Q18 numbers. PAT grew 19.7% y/y against expected 7.9% y/y growth. This was due to faster-than-expected growth in Net interest income (NII) at 1.8% y/y against expected -0.8% y/y growth. The faster growth in NII was backed by the aggressive loan book during the quarter (+3.8% y/y, 3.3% q/q) against 2.1% y/y (1.6% q/q) projections. Unlike its peer, Equity Bank, NIM ticked up by 10bps q/q (20bps y/y) to 8.9%, above the expected 8.8%. Non-interest revenue (NIR) growth was also above expectations (+2.6% y/y) contributing 33.1% to total income against expected NIR contribution of 32%. Cost to income (CTI) fell to 49.5%, the lowest in the last 5 years, mainly due to a 7.4% y/y cut in staff costs. NPL ratio improved admirably by 80bps to 7.6%, a 3-year low as gross NPLs dropped 7.6% q/q.
We are delighted by the improvement in key performance ratios; NIM, CTI and NPL ratio. Against 3Q18 numbers and at the current market price of KES 38.25, we maintain our BUY recommendation on KCB at a target price of KES 55.99.
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