Kiatnakin Bank

Kiatnakin Bank Plc (KKP)
 

-3Q13 profit contracts harshly qoq. Fee income and profit from sales of investment fall. High loss from repossessed car
KKP's 3Q13 net profit was B990m, 13% lower than expected, contracting by
19.9%qoq but growing by 6.8%yoy due to the following:
1) 3Q13 loss from sales of NPA was B263m, rising fiercely from B11m loss in
2Q13 - worse than expected. Though B138m profit from sales of NPA from the
total principal of B541m was recognized, the profit was negated by B401m loss
from sales of repossessed cars in 3Q13, as used car price fell by 20-25%. Also,
profit from sales of investment fell implicitly in 3Q13, in line with fluctuating
market. 2) 3Q13 fee income shrank by 29.8%qoq, but rising 70% - worse than
expected. Advisory income from BTSGIF and other deals at the total of B372m
was not recognized in 3Q13 like 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 was still growing. Fee income from
capital market business, mainly brokerage fee income from securities trading,
especially from PHATRA, decreased along with daily sales volume that declined
by 28%qoq. 3) 3Q13 net interest income fell by 2.5%qoq but growing 20.4%yoy
- better than expected, in line with net loan growth at 2.4%qoq and 16.5%yoy,
mostly used car leasing loans which have grown 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 were
still growing significantly, but making up only 26% of total loans, so they didn't
boost net loans growth much. 9M13 net loans grew by 10.6% from end-2012,
quite high compared to our target at 12%yoy. However, 3Q13 NIM dropped by
13bp to 3.82% - better than expected, as yield decreased due to debt repayment
for property loans in 2Q13, restructuring property loans. 3Q13 funding cost rose
slightly. Though there were some supporting factors, they could not negate
aforementioned pressing factors. 3Q13 debt provision decreased by 54.1%qoq -
better than expected. Credit cost fell from 164.5bp in 2Q13 to 73.7bp, as KKP
used collective approach. NPL to total loan ratio stayed at 3.38%, not rising like
in the previous quarter.
- Maintain forecast. 4Q13 profit depends on capital market
We maintain our FY2013-2014 earnings forecast. 9M13 net profit made up 77%
of FY2013 earnings forecast. 4Q13 earnings result is likely to improve; loss from
repossessed car sales is likely to drop, as used car price is likely to be stable, not
decreasing harshly as previously. KKP would depend on capital market business
more if SET fluctuates more positively than in 3Q13, boosting KKP's fee income
and profit from investment portfolio. Fee income from financial advisory service
is not likely to be strong, as there would be no big deal like in the previous two
quarters.
- Share price undergoes correction. Dividend yield to increase to 6-9% p.a. in next three years
We reiterate "BUY", as current share price has undergone severe correction. KKP
has over 14% 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-
9% p.a. (paid twice a year) in next three years.