Kiatnakin Bank

Kiatnakin Bank Plc (KK)

- BTS infra fund deal reaches conclusion. To book fee income in 2Q13. Market volume is better than expected
- Up forecast by including fee income and market volume;2013’s profit beat peers
- Reiterate to buy. New FV is B80, implying 20% upside. Attractive div yield CGR
- BTS infra fund deal reaches conclusion. To book fee income in 2Q13. Market volume is better than expected
The Securities and Exchange Commission (SEC) has eventually approved an
establishment of BTS infrastructure fund (BTSGIF) valued totaling at B60bn
through issuing of 5,788 million investment units with the IPO price range of
B10.40-10.80. The fund will open for subscription on 29 March – 4 April. This
largest investment banking (IB) deal in 2013 will benefit PHATRA, after its
complete merger with KK, as it is a financial advisor for the deal. We estimate
the fee income that will be booked in 2Q13 at B400-500m, or 28% of 2Q13’s
net profit forecast and 6.2% of FY2013’s net profit forecast. Capital market
businesses under PHATRA’s operation includes investment banking, investment
& trading, and private wealth, which are key businesses that would drive overall
net profit of the industry in 2013 given the currently prosperous market
condition with average daily trading volume of as large as B60bn a month at
present. Accordingly, we are confident that the brokerage income, fee income
from investment banking business, and investment portfolio of B10bn will help
compensate for a dull outlook of KK’s banking business in 2013. KK’s net loan
growth in 2013 is projected to decrease from the prior year to only 20%yoy,
especially for car hire-purchase loans after the government’s first car scheme
already expired. Moreover, loan spread is anticipated to contract 20bp from a
decline of yield after rising to an unusual high level after the end of the
alleviation for the flood-affected clients. In addition, for the special asset
management business or SAM, the bank has lowered the target for NPA sale to
only B2.5bn from B3.2bn in the previous year, so profit from NPA sale is
projected to fall 22%yoy to B1bn.
- Up forecast by including fee income and market volume; 2013’s profit beat peers
We revise up KK’s profit forecast in 2013-14 by 6.2% and 5.4%, respectively,
mainly by increasing an assumption for fee income significantly by 9.9% and
6.4%, respectively and daily trading volume of the market to B40bn from
B30bn. As a result, 2013-14’s net profit is projected to grow remarkably at
52.5%yoy and 17.3%yoy, respectively, which is the highest growth in the
banking sector (excluding TCAP that will book an extraordinary profit of more
than B7bn in 2013 from a sale of investment in TLife).
- Reiterate to buy. New FV is B80, implying 20% upside. Attractive div yield
We reiterate our BUY recommendation. New 2013’s fair value, using GGM; at
new PBV of 2x from 1.8x; and under long-term ROE forecast of 17.7% from
17%, is B80, versus the previous fair value of B70. The new fair value implies
20% upside, with average dividend yield expected the most notable among
peers at 4-5% p.a. (paid semiannually). Lately, the bank has announced 2H12’s
dividend at B1.40/share or a dividend yield of 2.1% for a half year (payout ratio
is 58%). XD date is on 2 May 2013 and payment date is on 23 May 2013.