Kiatnakin Bank

Kiatnakin Bank Plc (KK)
Earnings exceeded estimate by 3%
KK reported a 2Q13 profit of Bt1.24bn, up by 51% YoY and 6% QoQ. The result was 3% higher than our estimate and 8% above the Bloomberg consensus, attributable mainly to greater fee income than modeled (we assumed fee income of only Bt1bn; KK posted Bt1.3bn). 1H13 earnings jumped 72% YoY to Bt2.4bn, which represents 51% of our FY13 projection of Bt4.7bn.
Results highlights
Lending rose by 3.3% QoQ and 18.1% YoY to Bt205bn (driven by HP and SME business); our estimate was only 2% QoQ growth. The stronger-than-expected loan expansion and good funding cost management made for a 2Q13 NIM of 4.26%, up 53 bps. 2Q13 fee income jumped by 210% YoY and 6% QoQ to Bt1.3bn, led by banking fees and revenue from the securities business, especially brokerage and IB income (boosted by advisory and underwriting fees on the BTS Rail Mass Transit Growth Infrastructure Fund, or BTSGIF).
The bank holding company set loan loss provisions of Bt747m for the quarter, up by 34% YoY and 25% QoQ. Its NPLs/loans ratio inched up to 3.5% at end-June from 3.2% three months earlier. Its loan loss coverage ratio declined slightly to 110.7% from 114.2% at end-March. 
Outlook
This year, synergy-building enabled by the KK-PHATRA merger should boost earnings on a YoY basis. The booming capital markets may enable the bank holding company to build brokerage and IB income in excess of our current assumptions. An FY13 earnings forecast upgrade is likely. 
What’s changed?
KK is likely to deliver softer QoQ earnings for 3Q13, as it won’t book income from any IB deals approaching the size of BTSGIF.  Additionally, its NIM will be squeezed slightly QoQ because of greater competition for deposit mobilization in 2H13. Stronger-than-modeled fee income may fully offset the effect of our upsized FY13 LLP assumption of Bt2.2bn (it was previously Bt1.6bn). As such, our FY13 earnings forecast stands unchanged at Bt4.7bn.    
Recommendation
Given the favorable outlooks for both lending and the capital market throughout the year, there is scope for upside to our current model. In any case, KK offers attractive dividend yields of 5% for FY13 operations and 5.5% for FY14. We have a TRADING BUY rating on the stock.