Kiatnakin Bank

Kiatnakin Bank Plc (KK)

Q1 2013’s profit to grow 12.1%qoq…securities business remarkable; loan robust
KK’s net profit in 1Q13 is projected at B1.19bn, growing 12.1%qoq and 107.5%
from the same period last year due to following contributing factors. 1) Net
interest income in 1Q13 is anticipated to grow 12.1%qoq and 55.8%yoy,
in line with the net loan growth of 4%qoq and 21%yoy. The used-car hirepurchase
loan has shown continuous growth in upcountry, particularly secondhand
pick-up car loan which is a strong point of KK and also gives high yield. At
the same time, SME loan, which focuses mainly on logistic operators, floor plan
loan (for used car sale tent operators) and loan for apartment operators have
also shown impressive growth, while NIM is projected to stay flat from the prior
quarter at 4.06%. 2) Fee income in 1Q13 is estimated to remain close to
that of the previous quarter. Although in this quarter the bank did not book
fee income from big deals of PTTEP and TLGF like in the previous quarter, it
would be compensated by fee income from other businesses in the capital
market, including brokerage fee income, which has been supported by daily
securities trading volume that has grown to B60bn a day on average and profits
from PHATRA’s portfolios of short-term investment (direct investment and prop
trade) as well as equity derivatives trading and hedge funds. On the other hand,
the factors to suppress earnings results in this quarter are as follows. 1) Profit
from NPA sale would decrease to around B200m, from almost B350m in
4Q12, which is normal for the transactions to slow down in the beginning of the
year. 2) Debt provision expense would remain high close to that of the
prior quarter with average credit cost of around 90bp, inline with NPL that has
increased slightly in this quarter. However, overall, the positive factors from the
growth of the main business still have more weight, so we still foresee net profit
growth in 1Q13. previous year, so profit from NPA sale is projected to fall
22%yoy to B1bn.

Q2 2013’s profit even better. To book B500m fee income from BTS deal
We revise up KK’s profit forecast in 2013-14 by 6.2% and 5.4%, respectively, We
anticipate KK’s net profit growth to get even better in 2Q13, thanking mainly to
PHATRA’s fee income from its role as a financial advisor for the B60bn-worth
BTSGIF. We estimate the fee income from the deal, which will be booked in
2Q13, at around B400-500m, or 28% of 2Q13’s net profit forecast and 6.2% of
FY2013’s net profit forecast. Accordingly, KK’s net profit in FY2013-2014 would
grow as notable as 52.5%yoy and 17.3%yoy, respectively, which is the highest
growth among peers (excluding TCAP that will book an extraordinary profit of
more than B7bn in 2013 from a sale of investment in TLife).

BUY. Shooting star with notable profit and div yield. Upside above 20%
We reiterate our BUY recommendation. FY2013’s fair value (GGM), at PBV of 2x
and under long-term ROE forecast of 17.7%, is B80, implying more than 20%
upside. Moreover, average dividend yield is expected to be 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.