Kiatnakin Bank

Kiatnakin Bank Plc (KK)

-2Q13 profit disappointing. BTSGIF fee income recognized, but provision increases
KK announced 2Q13 net profit at B1.27bn, 8% lower than projected but still able to make a new high with the growth of 6.4%qoq and 51.3%yoy due to following contributions. 1) Fee income in 2Q13 grew as high as 31.4%qoq and 196.4%yoy – as projected, thanking mainly to a fee income of totaling B372m from a financial advisory deal with BTSGIF and other deals. In addition, there has also been fee income from Bancassurance and capital market businesses, especially brokerage fee income from PHATRA that has benefited from the hightrading volume in the market at above B50bn a day. 2) Net interest income increased 15.4%qoq and 14.5%yoy – better than expected, in line with the net loan growth of 3.5%qoq and 18.2%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 25% of the total loans, they could not substantially push up the overall net loan growth. Net loan in 1H13 has grown 7.9% from end-2012, compared with the bank’s target of 15%yoy but still lower than our target of 20%yoy. NIM has risen by 45bp to 3.95% - substantially higher than projection, thanking to an increase in yield by 33bp likely because of repayment of housing loans. Funding cost also decreased 13bp in this quarter. 3) Operating expenses in 2Q13 decreased 1.1%qoq and 37.6%yoy – better
than expected, so cost to income ratio dropped to only 42.49%, mainly from a decrease of personnel expense, while income grew at a more accelerated rate. However, a factor that depressed earnings in this quarter was an increase in debt provision by 25.4%qoq and 33.6%yoy – higher than projected. Credit cost shifted to 164.5bp, still above the policy level of the bank at 60-90bp. NPL to total loans ratio has increased slightly to 3.40%, but still not exceeded the limit of 3.50%, mainly NPL from used car loans on which the company has raised cautions.
- Cut forecast; loan target decreased, provision increased. Worry about 2nd half 2013 outlook
We revise down our earnings forecast for 2013-2014 respectively by 6.8% and 5.2%. Net loan growth assumption was cut, while debt provision assumption was increased. Although 1H13 net profit has comprised 50% of FY2013 forecast, we have begun to worry about the net profit outlook in 2H13 from the volatile capital market and the quality of used car loan asset that might accelerate debt provision expense in the second half of the year. 2013-2014’s credit cost is projected at only 70bp, very low comparing to above 147.8bp in 1H13.
- New fair value is B67. Share price undergoes correction. Dividend yield attractive
We reiterate our BUY recommendation. The current share price has undergone correction and still has more than 34% upside from new 2013 fair value at B67 (GGM, at PBV of 1.72x), under long-term ROE forecast of 16.2% (from B80 at PBV of 2x and under long-term ROE forecast of 17%). Average dividend yield is expected at more than 6-7% p.a. (paid semiannually).