Kiatnakin Bank

Kiatnakin Bank Plc (KK)
- 3Q13 profit to contract. Fee income falls, provision and NIM back to normal
KK's 3Q13 net profit is projected at B1.14bn, contracting by 7.8%qoq but
growing by 22.9%yoy due to the following: 1) 3Q13 fee income is projected
to shrink by 15.9%qoq but rising 103.8%yoy, as advisory income from
BTSGIF and other deals at the total of B372m is not recognized as in 2Q13. Fee
income from M deal was not enough to negate the effect. For fee income from
other transactions (e.g. bancassurance), car hire-purchase business is still
growing. Fee income from capital market business, mainly brokerage fee income
from securities trading, especially from PHATRA, is likely to decrease along with
daily sales volume that declined by 28%qoq. 2) 3Q13 net interest income is
projected to fall by 7.5%qoq but growing 14.1%yoy, contrast to net loan
growth at 3%qoq and 17.1%yoy, mostly used car leasing loans which are still
growing in provincial markets at the average rate of 1%mom since 2Q13. SME
loans focusing on logistics entrepreneurs, including loans for property and
apartment entrepreneurs are still growing significantly, but making up only 25%
of total loans, so they don't boost net loans growth much. 9M13 net loans might
grow by 11.2% from end-2012, quite high compared to our target at 12%yoy.
3Q13 NIM is projected to drop by 41bp to 3.54% as yield would decrease by
43bp due to debt repayment for property loans in 2Q13. 2Q13 funding cost is
projected to stay unchanged qoq. 3) 3Q13 operational cost would stay flat
qoq but rise 11.5%yoy. As total income fell, 3Q13 cost to income ratio would
rise from 42.49% to 47.48%. However, though 3Q13 debt provision would
decrease by 37.4% (rising 9.5%yoy), credit cost is projected to fall from
164.5bp to 100bp, as KK has used collective approach. NPL to total loan ratio
would stay at 3.40%, rising in 2Q13 but not exceeding 3.50% target, mostly NPL
in used car business. KK has been more careful on floor plan loans for car sale
tent operators, as there is more pressure from car stock, which would affect the
debtors' liquidity.
- Maintain forecast. 4Q13 supporting factors depend on capital market
We maintain our FY2013-2014 earnings forecast. Although 9M13 net profit is
projected to make up 80% of FY2013 earnings forecast, there is no supporting
factor to boost business growth aside from capital market business. Fee income
and profit from sales of investment are usually fluctuating along with capital
market. If the capital market business is strong, the earnings result would be
better than expected.
- Share price undergoes correction, boosting dividend yield to 6-8% p.a. in next two years
We reiterate "BUY", as current share price had undergone severe correction. KK
has over 16% upside compared to new FY2013 fair value at B50.30 (GGM, 1.29x
PBV under 14.4% long-term ROE forecast). Dividend yield is projected over 6-
8% p.a. (paid twice a year) in next two years.