Kiatnakin Bank

Kiatnakin Bank Plc (KK)

3Q12’s profit to grow robustly qoq and yoy solely from core businesses
We anticipate KK’s net profit in 3Q12 at B922m, hitting another quarterly
high with the growth of 12.8%qoq and 5.5%yoy thanking solely to the core
businesses. 1) Net interest income is estimated to shift by 6.1%qoq and
21.6%yoy mainly from the growth of interest income from car hire-purchase
loans especially for used cars that have thrived notably in this quarter as KK’s
main customer base (77%) is in provincial areas (52% is pick-up car, 36% is
passenger car, and the rest 12% is truck and van). Loans for property
developers and SMEs (mainly apartment construction for rent) have also
shown magnificent growth. Consequently, overall, we project net loan growth
in 3Q12 at 4.2%qoq and 23.5%yoy, which will make net loan in 9M12 jump
by 17.4% from end-2011, already equal to FY2012’s target we have
expected. 2) NIM is anticipated to drop by 9bp to 3.63% as in 2Q12 the bank
recognized B200m in interest income from debtors of property loans which
had repayment relief benefit. Excluding this item, NIM would stay flat from
the prior quarter. Funding cost would stabilize qoq as KK is still focusing on
raising low cost deposit to replace B/E. 3) Fee income is projected to thrive
11%qoq and 28.4%yoy in line with car hire-purchase transaction as well as
fee income from Bancassurance. 4) Profit from selling of non-performing
asset (NPA) is expected to stand close to that of the prior quarter at B300m.
On the other hand, the factor that is pressuring profit in this quarter is debt
provision which remains high close to that of 2Q12 at B560m or credit cost of
around 139bp following the growth of new loan and in order to be rival the
sector’s credit cost at above 116bp at end-1H12. Moreover, operating
expense is anticipated to hike by 6.5%qoq and 21.9%yoy from the opening
of 5 new branches in this quarter. Overall, we estimate net profit in 9M12 of
KK to rise to B2.31bn or the growth of 3.6%yoy, which comprises 76% of our
previous forecast.

Up 2012-13’s forecast and fair value from underestimation of
loan and fee income
We revise up our net profit forecast for FY2012-2013 by increasing key
assumptions which are loan, NIM, and fee income we have previously
underestimated (see the table on the next page). Furthermore, there is also
a benefit or business synergy from its amalgamation with PHATRA (the 2
companies have started making consolidated financial statement since 12
September 2012), which will help boost net profit of KK fully in 4Q12
throughout 2013, especially fee income and securities business that is
brightening along with the market condition. We project EPS in 2012 to drop
by 12.4%yoy (as a result of the capital increase), but it would revert to the
growth of 36.1% again in 2013.

Upgrade to BUY. Outperforming from most outstanding EPS
among peers in 2013
We upgrade our recommendation for KK to buy from “hold to receive
dividend”. After the forecast revision, fair value in 2012-2013 increases to
B53.08/share and B57.26/share respectively, based on PBV of 1.57x (from
1.15x) and long-term ROE forecast of 16.5% (from 15%). The upside for
2012-2013 increases to 15% and 24% respectively.