Kiatnakin Bank

Kiatnakin Bank Plc (KK) 

Earnings fell 48.8% short of estimate

KKP reported a 4Q14 profit of Bt488m, down by 53% YoY and 42% QoQ. The result was 48.8% below our estimate and 39.0% short of the Bloomberg consensus, attributable mainly to heavy loan loss provisioning of Bt1.53bn during the quarter (we had assumed LLPs of only Bt826m). FY14 earnings dived 40% YoY to Bt2.64bn, which represents only 85% of our projection of Bt3.1bn.

Results highlights 

Lending dipped by 1.7% QoQ and 3.2% YoY to Bt185bn (squeezed by a slump in HP business), in line with our estimate. NIM rose to 3.79% in 4Q14, up by 25 bps QoQ and 33 bps YoY, due chiefly to lower deposit rates. Fee income dropped by 11% YoY and 8% QoQ to Bt1bn, as there was little advisory or underwriting business, FX trading declined and banking fees tied to loans slipped during the quarter.

KKP set loan loss provisions of Bt1,525m for 4Q14, up by 175% YoY and 168% QoQ. We had assumed LLPs of only Bt826m. Its NPLs/loans ratio was 5.6% at YE14, flattish QoQ, while its loan loss coverage ratio inched up to 81.6% from 71.3% three months earlier.

Outlook 

We expect KKP to set lighter LLPs in 1Q15 onward. Thus, FY15 earnings should rise moderately YoY. Our earnings projections stand at Bt3.5bn for FY15 and Bt4bn for FY16.

What’s changed?

We maintain our profit forecasts and YE15 target price unchanged for the moment in anticipation of a business recovery this year.

Recommendation

KKP should deliver moderate earnings growth in FY15 following heavy loan loss provisioning last year tied to bad debts for HP and losses on the resale of repossessed vehicles. Because the stock currently offers fair dividend yields of 4.4% for FY14 and 5.0% for FY15 it is worthy of a HOLD rating as a dividend play.