Kiatnakin Bank

Kiatnakin Bank Plc (KKP)

Noting to expect from 1Q14 earnings
We estimate KKP’s 1Q14 net profit at B923m, shrinking
10.3%qoq and 20.6%yoy and making a record low in seven
quarters. Net interest income is projected to stay flat qoq
because the net loan growth has been substantially lower than
our and the company’s FY2014 target of 8%yoy and 10%yoy,
respectively. Yet, KKP maintained its net loan growth target as it
projected to see disbursement of one corporate borrower of
B6bn, which is 3% of its current net loan, to help reduce a risk
of the downtrend. 1Q14 NIM is estimated at only 3.65%,
decreasing 7bp from the prior quarter because loans have not
grown whereas funding cost has increased from long-term bond
issuance to meet with duration of the loan. NPL has also
increased mainly from used-car leasing business. Fee income is
projected to decline 10.4%qoq in 1Q14 because there was not a
big transaction deal like in 4Q13, while bancassurance
transactions have also decreased following slowing car leasing
business. Likewise, income from other operations is anticipated
to lower 13.6%qoq. Loss from repossessed car selling has been
booked continuously, while profit from non-performing asset
(NPA) selling would be insignificant in this quarter on seasonal
effect. Debt provision is projected to increase 21.1%qoq. Credit
cost would increase to 140bp from 116bp in 4Q13, in line with
rising NPL.

- Hope to see business recovery in 2H14
We maintain our earnings profit for 2014-2015, projecting the
net profit in 2014 to drop 1.5%yoy, based on conservative
assumptions. Still, we project to see a business recovery in
2H14 if the political problem improves. Particularly, the car
leasing business that has been at the bottom of this round of
crisis would gradually revive in the second half of the year (loan
will grow; debt provision and loss from repossessed car will
decrease).

- Hold for dividend
We recommend only holding KKP for its dividend of above 6-
8%p.a. on average (paying semiannually) in the next three
years. 2014 fair value (GGM), at 1.02x PBV and long-term ROE
forecast of 13%, is B42, no upside left.