Kiatnakin Bank
Profit growth still expected this year
Kiatnakin Bank Plc (KK)
Investment thesis
We maintain our FY14 earnings projection unchanged at Bt4.8bn, up 8.6% YoY (following 29% growth last year). The drivers will be lighter loan loss provisioning and moderate loan expansion (both commercial and retail) of 10% this year after 13% in FY13. KKP trades at a very cheap YE14 PBV of 0.9x with an anticipated dividend yield of 6.6% for FY14. We forecast FY14 ROE of 13.2%, somewhat below management guidance of 13-15%. Our TRADING BUY call stands.
KKP’s ambitious FY14 loan growth target of 21% looks unrealistic
Management’s FY14 loan growth target is 21% (much higher than its FY13 lending growth performance of 13%), which disaggregates as commercial loan growth of 21% (26% in FY13) and retail lending growth of 15% (9.4% in FY13). KKP anticipates an FY14 interest rate spread of 3.9%, down slightly from 4.0% last year.
We believe that KKP’s FY14 loan growth guidance is too high, given the weak economic environment, which is now being exacerbated by political unrest. We maintain our FY14 loan growth projection at 10% and assume a NIM of 3.5%.
Loan loss provisions to decline
KKP aims to set FY14 loan loss provisions in the range of Bt1.6-2.0bn down sharply from Bt3.5bn (including impairments on HP for used cars totaling Bt1.1bn) last year. Management does not expect extra impairments for used car HP this year. Note that 47% of its HP portfolio comprised used cars as of YE13. We assume FY14 LLPs of Bt2.1bn. KK targets an NPLs/loans ratio range of 3.0-3.5% this year; it was 3.8% at YE13, up from 3.3% at YE12.
NPA sales will decline in FY14, as will the gain
Management said that NPA sales will fall to about Bt2.3bn this year from Bt2.8bn in FY13. Note that the bank holding company booked gains of Bt1bn from NPA sales last year. We assume NPA sales of Bt2.1bn in FY14 and a gain of Bt700m. Note that the assets in question—which mostly comprise real estate—would probably fetch higher prices in a year or so than KKP could expect in the current unfavorable environment.
