Kiatnakin Bank

Kiatnakin Bank Plc (KK)

 

Investment thesis

We maintain our FY15 earnings projection unchanged at Bt3bn, up 12.3% YoY (following a 41% dive last year). Although HP business will take more time to recover than estimates for 2H15, the bottom-line driver will come from lighter loan loss provisioning (LLP) and a rising gain on NPA sales (distressed asset management). These could offset our FY15 and FY16 earnings forecasts to stay unchanged. Presently, KKP trades at a very cheap PBV of 0.8x in FY15 and 0.7x in FY16 with anticipated dividend yields of 5.4% for FY15 and 5.9% for FY16. We, thus, reiterate our HOLD rating for KKP as dividend stock play.

FY15 loan will see a small dip, caused by poor HP business

Management expected its FY15 loans to drop further following a 3.4% contraction last year. During 9M15, its lending shrank 4.2% YTD, caused mainly from the poor HP market for both new and used cars (9M15 new car sales dipped 15%). We slashed our loan growth assumption from flat YoY in FY15 to a contraction of 4% and from 10% growth in FY16 to 5%. We keep our NIM for KKP at 3.9% for FY15 and FY16, slightly lower than KKP’s NIM guidance at more than 4%. 

FY16 LLP has room to fall YoY

KKP told analysts that its FY15 LLP would be slightly higher than last year due to prudent policy (collective approach) and could decline in FY16. We reiterate that KKP sets its FY15 LLP at Bt3.3bn, including impairments on HP for used cars totaling Bt600m. Note that about 65% of its total loan portfolio was in HP business in 3Q15. We maintain our FY16 LLP to drop 9% to Bt3bn in our model. KKP management expects its NPL/loan ratio to be up slightly in 4Q15 from 6.6% at end-Sept due to its collective approach (following the BOT’s requirements).

NPA sales could offset poor loan growth this year and next

Management said that FY15 sales of non-performing assets (NPA) could be Bt2.1bn, with an anticipated 20% in gains. KKP booked gains of Bt310m from NPA sales in 9M15. We have raised our gain on NPA sales to Bt445m in FY15 and Bt400m in FY16 from the former Bt345m and Bt250m due to the better economic environment. Our fatter gains on foreclosed asset sales should roughly offset the effect of diminished lending projections as mentioned, thus our FY15 and FY16 earnings forecasts are sustained. If KKP were to sell NPAs for bigger gains than modeled, there would be scope for upside to our FY15 and FY16 earnings forecasts. Presently, KKP’s book value of NPA puts its worth at Bt4.6bn against its appraised value of Bt9.3bn. This implies that KKP sits on unrealized gains of Bt4.7bn for NPA, which it intends to sell within the next two years.