Kiatnakin Bank
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Grand visionary target for FY16 HOLD
Kiatnakin Bank
Investment thesis
We maintain our FY16 earnings projection unchanged at Bt3.6bn, up
10% YoY (following a 21% jump in FY15). Besides, we expect KKP’s
scope for upside could come from lighter loan loss provisioning (LLP),
better IB deals and lower losses on the sale of repossessed cars than
we modeled. We view that corporate and HP loan growth could be
main core earnings drivers from last year. Presently, KKP trades at a
cheap YE16 PBV of 0.8x with anticipated dividend yields of 5.6%. We,
thus, reiterate our HOLD rating for KKP as dividend stock play.
Ambitious FY16 growth target of 15-19%, led by corporate loans
Management’s loan growth sets an ambitious target of 15-19% after
contraction last year—3.6%. Note that commercial business is targeted
to grow at least 15% (a 3.8% decline in FY15) and retail lending is set
to rise 5% (shrinking 6.8% in FY15). KKP anticipates an FY16 loan
spread of 4.5-4.7% up from 4.5% in FY15. Its revenue from capital
markets could have room to rise YoY, management said.
We expect its revenue from IB and asset management will be Bt500m
in FY16 close to last year’s. We maintain our FY16 loan growth of
merely 5% against the firm’s target of 15-19%. Likewise, we
conservatively forecast its FY16 NIM of 4.0% against the firm’s target of
4.5-4.7% because most corporate loans normally come with slim NIM.
But, we would wait and see its lending performance before any change
in our loan growth assumption. Thus our FY15 earnings forecast
remains unchanged.
FY16 LLP has room to fall sharply YoY
KKP told the analyst meeting that its FY15 NPL had peaked and could
decline in FY16. Hence, KKP could have room to drop its LLP setting
from last year. Note that KKP set FY15 LLPs of Bt3.2bn, including
impairments on HP for used cars totaling Bt2bn—at YE15 46% of its
HP portfolio comprised used cars. We currently assume FY16 LLPs of
Bt3bn in our model. The bank targets an NPL/loan ratio of below 5% at
YE16, down from 5.8% at YE15. It may set lighter LLP than we assume
if the economy strengthens significantly during 2H16, we believe.
If the economy improves, NPA sales will provide profit upside
FY16 sales of non-performing assets (NPA) should come to Bt1.6bn with
anticipated gain of about Bt800m close to last year, management said.
KKP booked gains of Bt844m from NPA sales in FY15. We assume NPA
sales of Bt1.6bn in FY16 and a smaller gain of Bt450m. If it were to sell
NPAs for bigger gains than modeled, there would be scope for upside to
our FY16 earnings forecast. At YE15, it reported NPAs totaling Bt4.6bn
(with appraised values of about Bt9bn), which it intends to sell within the
next two years.
