Kiatnakin Bank

Kiatnakin Bank Plc (KK)

Earnings exceeded estimate by 29%: KK posted a 2Q12 profit of Bt818m, up by 8% YoY and 42% QoQ. The result was 29% higher than our estimate and 34% above the consensus, attributable to a fatter NIM than expected (we modeled for 3.10%; KK posted 3.53%, boosted by 14% YTD loan growth for 1H12). Hence, 2Q12 pre-provision operating profit jumped 34% YoY to Bt1.2m. 1H12 earnings represent 54% of our earlier FY12 forecast.
Results highlights: Lending grew by 6.1% QoQ and 28% YoY to Bt173.7bn (driven by HP, mortgages and SME business); our estimate was 5%. Additionally, KK’s NIM soared 60 bps QoQ to 3.53% in 2Q12, driven by strong HP and SME lending growth and better QoQ funding cost management. The B/E proportion of KK’s funding mix fell to 26% at end-June 2012 from 44% at YE11.
The bank set loan loss provisions of Bt560m for 2Q12, up 162% YoY and much higher than our estimate of Bt350m. Its NPLs/loans ratio dipped to 3.4% at end-June from 3.5% at end-March. KK increased its loan loss coverage ratio to 106.9% from 102.1% at end-March. 
Outlook: The bank’s 1H12 lending growth out-performance prompted us to upgrade our FY12 loan growth forecast to 25% from 17% formerly. But we maintain our FY12 and FY13 NIM forecasts at 3.11% and 3.10%, respectively. We expect deposit mobilization competition to intensify further in 2H12.
What’s changed? Because of our expanded expectations for loan growth, we have raised our FY12-13 earnings projections by 9% and 7%, respectively, to Bt2.87bn and Bt3.35bn.
Recommendation: Our revised up FY12 profit forecast means that our YE12 target price rises by 25% to Bt41.50, pegged to a justified PBV of 1.06x (re-rated from 0.8x to factor a higher ROE assumption). We, thus, have upgraded our KK rating from SELL to HOLD. There would be scope for upside to earnings if the planned KK-PHATRA merger were to deliver greater synergistic benefits than we currently assume. In the meantime, we regard KK as essentially a dividend play.