Kiatnakin Bank

Kiatnakin Bank (KK) Plc

Earnings exceeded estimate by 5.6%
KK booked a 1Q13 profit of Bt1.16bn, up by 101% YoY and 9% QoQ. The result was 6% higher than our estimate and 2% above the Bloomberg consensus, attributable to bigger extra gains from direct investments and from sales of foreclosed assets than modeled (we assumed extra gains of only Bt400m; KK posted Bt548m). 1Q13 earnings account for 26.4% of our FY13 earnings projection.
Results highlights
Lending grew by 4.1% QoQ and 24.1% YoY to Bt198.8bn (driven by HP, personal loans and SME business); our estimate was 3.0% QoQ. But the effect of stronger loan growth than expected was mitigated by NIM erosion of 6 bps QoQ to 3.30% in 1Q13, due to stiffer competition for business. 1Q13 fee income jumped by 181% YoY and 42% QoQ to Bt1.3bn,led by banking fees and revenue from the securities business, especially brokerage and IB income (after the completion of the KK-PHATRA merger in November last year).
The bank holding company set loan loss provisions of Bt596m for the quarter, up by 179% YoY and 68% QoQ. Its NPLs/loans ratio dipped to 3.2% at end-March from 3.3% at YE12. The loan loss coverage ratio was 114.2% at end-March 2013, up from 109.5% at YE12. 
Outlook
This year, synergy-building enabled by the KK-PHATRA merger should boost earnings on a YoY basis. The booming capital market may enable KK to build brokerage and IB income in excess of our assumptions. An FY13 earnings forecast upgrade is likely. 
What’s changed?
We will attend KK’s analyst meeting next week before adjusting our model, so our earnings projections stand at Bt4.4bn for FY13 and Bt5.6bn for FY14 for now.   
Recommendation
Given the favorable outlooks for both lending and the capital market this year, there is scope for upside to our earnings forecast. Our TRADING BUY call stands.