Kiatnakin Bank

Kiatnakin Bank Plc (KK)

Q1 2013’s profit grows 8.8% QoQ. Securities business notable,offsetting shrunk NIM

KK’s net profit in 1Q13 was reported at B1.16bn, hitting quarterly record high as
projected by growing 8.8% QoQ and 101.4% YoY due to the following supports.

1) Fee income has grown by 16% QoQ and 151.5% YoY - better than
projected. Although the bank did not book fee income from big deals of PTTEP
and TLGF like in the previous quarter, it was compensated by fee income from
Bancassurance and capital market business, especially brokerage fee income
from PHATRA that has benefited from the massive daily trading volume of B60bn
on average. 2) Income from other operation in 1Q13 have grown by
14.3% QoQ and 126.8% YoY – higher than projected, mainly from the
growth of income from FX business, B362m of profit from sale of investment in
PHATRA’s portfolios, and dividend income. Profit from NPA sale has decreased to
B51m, which was a lot lower than projected, from almost B350m in 4Q12;
however, it is normal for the transactions to slow down in the beginning of the
year. 3) Operating expense in 1Q13 has dropped by 10.5% QoQ – better
than projected, mainly as a result of a decrease in promotional and marketing
expenses in the end of the year. Cost to income ratio in 1Q13 has lowered to
45.3% from 52.8% in 4Q12. On the other hand, there’re pressuring factors in
1Q13 as follows. 1) Net interest income has fallen by 3.9% QoQ (but still
growing 33.5% YoY) – worse than projected. Net loans have grown by
4.3% QoQ and 21.3% YoY due mainly to used-car hire-purchase loans that still
have thrived continuously in upcountry, SME loans which focus mainly on logistic
operators, floor plan loans (for car sale tent operators), together with loans for
property and apartment entrepreneurs. However, NIM has contracted greatly by
53bp to only 3.53% as a result of decreased loan yield, while funding cost still
has stabilized in this quarter. 2) Debt provision expense in 1Q13 has surged
by 44.7% QoQ and 281.8% YoY – higher than projected. Credit cost stood
high at 135bp, against NPL to gross total loan ratio that still dropped
continuously in 1Q13. Accordingly, coverage ratio (LLR/NPL) at end-1Q13 has
increased to 115.5% from 110.5% at end-2012. Overall, positive factors from
revenue growth of main businesses at more accelerated rate were main
contribution for the bank’s net profit growth in 1Q13.

- Q2 2013’s profit to get brighter. To book fee income from BTSGIF deal
KK’s net profit is projected to get even better in Q2 2013, due mainly to fee income
from PHATRA’s role as a financial advisor for the BTS Rail Mass Transit Growth
Infrastructure Fund (BTSGIF) worth of B60bn. We estimate the fee income from
this deal at around B300m, which will be booked in 2Q13. Accordingly, 2013-14’s
net profit forecast would grow notably by 52.5% YoY and 17.3% YoY
respectively, hitting the record high of the banking sector.

- BUY. Shooting star, prominent profit and div yield. 17% upside left
We reiterate our recommendation of “BUY” for KK. FY2013’s fair value (GGM), at
PBV of 2x and under long-term ROE forecast of 17.7%, is B80, implying 17%
upside. Average dividend yield is projected to be the most outstanding among
peers at 4-5% p.a. (paid semiannually). Recently, KK has announced to pay
2H12’s dividend at B1.40/share, or average dividend yield of 2.1%. XD date is on
2 May 2013 and payment date is on 23 May 2013.