Kiatnakin Bank

Kiatnakin Bank Plc (KK)

Q2 2013’s profit to grow remarkably qoq, thanks to BTSGIF fee income. Loans weaken
We estimate 2Q13’s net profit of KK at B1.35bn, making another new high
with notable growth of 16%qoq and 64.9%yoy due to following
contributions. 1) Fee income growth in 2Q13 is projected as high as
31.4%qoq and 196.5%yoy, thanking mainly to a fee income of around
B300m from a big deal, BTSGIF. Moreover, there will also be a fee income
from the banking business, especially Bancassurance, and the capital
market business, especially brokerage fee income from PHATRA that has
benefited from the high trading volume in the market at above B50bn a day.
2) Net interest income in 2Q13 is anticipated to grow 3.2%qoq and
2.3%yoy, in line with the net loan growth of 3%qoq and 17.6%yoy. The
used-car hire-purchase loan has shown continuous growth in upcountry,
average by 1%mom, but has begun to decrease from 1Q13. At the same
time, SME loans, which focuses mainly on logistic operators, floor plan loans
(for used car sale tent operators) and loans for apartment operators have
also shown very impressive growth. However, as these loans comprise only
24% of the total loans, they could not substantially push up the overall net
loan growth. Net loan in 1H13 has grown 7.4% from end-2012, compared
with the bank’s target of 15%yoy but still lower than our target of 20%yoy.
NIM is projected to stay flat from the prior quarter at 3.52%. 3) Cost to
income ratio in 2Q13 is projected to stabilize at 45.42%. Although
operating expense in the quarter is estimated to increase 3.5%qoq and
43.9%yoy, it results mainly from an increase in marketing expenses along
with the growth of car hire-purchase loan and these are usually one-time
expenses. 4) Debt provision in 2Q13 is anticipated to drop 31.7%qoq
and 27.3%yoy – more than expected, with credit cost decreasing to 90 bp
(the bank’s policy level is 60-90 bp) from 135 bp. NPL to total loans ratio
has increased slightly in this quarter, but still not exceeded the limit of 3.50,
mainly NPL from used car loans that the company has raised cautions on.
Overall, the positive factors from the growth of the main business still have
more weight, so we still foresee net profit growth in 2Q13.
- Likely to revise forecast after earnings declaration. Worry about 2H13 outlook
We maintain our earnings forecast for 2012-2013, but might revise it again
after 2Q13’s earnings declaration due to concerns over the net profit in
2H13 from the volatile capital market and the quality of used car loan asset
that might accelerate debt provision growth in 2H13. 2013-2014’s credit
cost is projected at only 70bp, very low comparing to above 110 bp in 1H13.
- During fair value and recommendation review
We reiterate our BUY recommendation, but are likely to review it again after
2Q13’s earnings are announced. FY2013’s fair value (GGM), at PBV of 2x
and under long-term ROE forecast of 17.7%, is B80. Average dividend yield
is expected to be the most notable among peers at 6-7% p.a. (paid
semiannually).