Kiatnakin Bank

Kiatnakin Bank Plc (KKP)

- 2014 loan target substantially higher than forecast, but profit consistent
We still do not change our outlook for KKP after the analyst meeting. The bank’s
business plan in 2014 remains quite in line with the growth in 2013, except for
net loan growth that has been targeted as high as 21%yoy from issuance of
syndicated loans, worth of B6bn, that has been delayed from 4Q13. Retail loan is
projected to grow 15%yoy, near that of 2013, particularly from car leasing but
with more caution on used-cars. In terms of fund raising, the bank would switch
to increasing CASA deposit proportion (previously focusing on long-term deposit
from private wealth customers, which has high cost) in order to reduce funding
cost and expand retail customer base. Accordingly, KKP maintains the spread
target in 2014 at 3.9%, up from 3.7% in 4Q13 and higher than our FY2014
target for flat growth. NPL is projected to be kept near 2013’s at 3.0-3.5% of
total loans because the current economic situation is difficult for debt quality
management. Credit cost target is still unclear but projected to decrease from
118bp in 2013 to 100p as we have estimated. Overall, KKP maintains 2014 ROE
target at 13-15%, close to FY2013’s and near our target of 14.86%.
- Maintain forecast, but downside foreseen if political unrest extends
We maintain our earnings forecast for 2014-2015, projecting the net profit
growth of 11.8%yoy and 9.2%yoy, respectively. However, there is a good
chance that the forecast will be slash in the future as the 2014 business plan was
made under an assumption that the general election succeeds and a new
government can be established, Furthermore, the current political turmoil has
extended and might thus depress the net loan growth under the target,
especially for retail loan, which is expected to grow as much as 15%yoy from the
car leasing loan (71% of total loans), that is very likely to show disappointing
growth.
- Hold for dividend. Leasing and capital market still unfavorable
We reiterate to hold KKP for its dividend yield, which can be expected above 7-
10%p.a. in the next three years (paying semiannually). 2014 fair value is B45.77
(GGM), at 1.11x PBV, under long-term ROE forecast of 3.30% and long-term
growth of 7.9%.