Kiatnakin Bank

Earnings fell 6% short of estimate

KKP reported a 3Q14 profit of Bt847m, down 14% YoY but up 41% QoQ. The result was 6% lower than our estimate (but 7% above the Bloomberg consensus), attributable mainly to a surprise loss of Bt398m on sales of foreclosed and repossessed assets during the quarter. 9M14 earnings dived 37% YoY to Bt2.15bn, which represents 67% of our FY14 projection of Bt3.2bn.

Results highlights 

Lending dipped 3.2% QoQ to Bt187bn (chiefly due to a corporate loan repayment of 2.1bn and a contraction in the HP portfolio), in line with our assumption. NIM was 3.88% in 3Q14, up by 42 bps QoQ and 25 bps YoY as a result of lower funding costs. Fee income increased by 12% YoY and 29% QoQ to Bt1.1bn, driven by revenue from the capital markets, FX trading and banking fees.

KKP set loan loss provisions of Bt570m for 3Q14, up by 66% YoY and 74% QoQ. We had assumed LLPs of only Bt450m. Its NPLs/loans ratio was 5.6% at end-September, basically flat QoQ, while its loan loss coverage ratio inched up to 71.3% from 69% three months earlier.

Outlook 

We now expect KKP may book to book another loss on sales of foreclosed assets in 4Q14, but assume it will be smaller QoQ. Thus, the profit for the quarter should be somewhat higher than the 3Q14 number. 

What’s changed?

Our earnings projections stand unchanged at Bt3.2bn for FY14 and Bt3.8bn for FY15. 

Recommendation

We expect KKP to deliver modest earnings growth in FY15 following heavy loan loss provisioning this year to cover non-performing HP loans and losses on sales of foreclosed assets. Because the stock currently offers relatively attractive dividend yields of 4.4% for FY14 and 5.0% for FY15 it justifies holding as a dividend play. HOLD!