Kiatnakin Bank

Kiatnakin Bank Plc (KK)

Investment thesis
We are bullish view on KK’s FY13-14 earnings outlook, premised on 1) fee income growth from IB and securities brokerage business, 2) retail and SME lending expansion, 3) good asset quality management (a low NPLs/loans ratio of 3.3%) and 4) a big 14.7% CAR (Tier-1 14%).  Additionally, we expect that KK to post a large 2Q13 profit, boosted by its position as sole financial advisor and lead underwriter for the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF). The bank should also win further big IPO deals in 2H13 onward, which could mean upside to its earnings profile. TRADING BUY!
Moderate lending growth for 1Q13, led by HP and SME
KK is focused on HP loans (mostly for used cars in the provinces) and small SMES (chiefly, car showrooms). Management guides for 1Q13 lending growth of 3-4% QoQ. We estimate loan growth of 4% for the quarter. KK’s FY13 loan growth target is 19%. Its posted 1Q13 NIM will be flat QoQ, due to intense competition, said management. As such, we assume a 1Q13 NIM of 3.3%.
Strong fee income after PHATRA merger completed
We expect fee income of Bt902m for 1Q13, up by 119% YoY and 11% QoQ, led by securities brokerage commissions, bancassurance sales and loan-related fees. KK also guides that it will book an investment gain from trading and direct investment for the quarter. We assume a 1Q13 investment gain of Bt485m, flat QoQ.  
Bigger loan loss provisions in 1Q13
Although KK’s YE12 loan loss coverage ratio was comfortable at 110%, it guides that it will set heavier provisions for 1Q13 (the sectoral mean loan loss coverage ratio is about 120%). Based on the guidance, we expect the bank to set loan loss provisions of Bt400m for 1Q13, up by 88% YoY and 13% QoQ.
Good earnings for 1Q13
Given 21% YoY loan growth, a sustained NIM and much greater YoY fee income (brought about by the merger with PHATRA in September 2012), we estimate 1Q13 earnings of Bt1.1bn, up by 91% YoY and 3% QoQ. We also expect significant 2Q13 profit growth, led by ongoing lending business fee income expansion. Note that Phatra Securities, now a wholly-owned subsidiary of KK, will book big fees from the IPO deal for BTSGIF in 2Q13. We expect advisory and underwriting fees of Bt350m from the IPO, which we have already factored into our model.