Kiatnakin Bank

Kiatnakin Bank Plc (KKP)

Waiting for capital market to revive in 2H14
KKP is not likely to rebound in 2Q14 due to the weak economy. We
recommend waiting for a recovery in 2H14. KKP is more
advantageous than other minor commercial banks; its income from
capital market business is strong, likely to recovery rapidly.

- 2Q14 profit to grow weakly
We project KKP's 2Q14 net profit at B733m, rising 4.7%qoq but weaker
than average net profit of B1.1bn/quarter in 2013. 2Q14 non-interest
income is likely to stay very low like 1Q14. 2Q14 fee income is expected to
grow slightly from 1Q14, but still weaker than 2013; brokerage fee (security
business) and IB are likely to contract. Operating cost is projected to stay
unchanged qoq; cost to income ratio is expected to remain as high as
50.6%. Net interest is likely to fall; 2Q14 net loan would drop by 2.5%qoq
due to a decline in car leasing loan and housing loan. 2Q14 NIM is expected
to stay around 3.79%, close to 1Q14’s. In terms of asset quality, KKP's NPL,
along with banking sector's NPL, is anticipated to increase as a result of the
weak economy. Credit cost is projected at 156bp, close to 1Q14’s.
Qualitative provisioning might be necessary.
- Maintain earnings forecast. Hope for rebound in 2H14
The economy is anticipated to improve in 2H14. Although KKP's 1H14 net
profit is projected to make up only 33% of FY2014 net profit forecast, we
maintain our FY2014 earnings forecast; capital market business is expected
to revive more rapidly than banking business which focuses on car leasing.
- Limited downside, high dividend yield
We recommend BUY. FY2014 fair value (GGM, 1.27x PBV, 14.4% long-term
ROE forecast) is B52.20, with averagely over 6-8%p.a dividend yield (paid
semiannually) in next three years.