Kiatnakin Bank

3Q14 profit to rebound, but on weak business SELL

Kiatnakin Bank Plc (KKP)

- 3Q14 earnings to rebound. Extraordinary expense to drop.

Provision to stay high

We estimate KKP's 3Q14 net profit at B669m, growing 11.3%qoq due to

lower extraordinary expense, but shrinking 32.4%yoy. Excluding the

extraordinary items, normalized profit is projected to grow 8.0%qoq but

stay flat yoy. Net interest income is projected to stay flat yoy. Though loans

are likely to fall significantly due to lower car sales, NIM is projected to rise

slightly thanks to lower funding cost. Fee income would grow thanks to

higher trading value. End-3Q14 NPL is projected to stay at 5.23% of total

loans. NPL from car leasing loans is expected to drop. However, as a result

of very low NPL coverage ratio at the end of 2Q14, debt provision may

increase significantly at the end of 3Q14.

- Core business not to rebound until 2015

We maintain our FY2014-2015 earnings forecast. KKP's net profit is

projected to contract significantly by 33.7%qoq in 2014, and then revive by

32.3%yoy (from the low profit base) in 2015. Car leasing loans are

projected to rebound in 2H15 as a result of high automotive supply in 2012-

2013. In order to boost NPL coverage ratio closer to the sector's average,

debt provision is expected to increase, depressing KKP's earnings for the

reminder of the year and negating benefit from a rebound in capital market.

- SELL. Prefer TISCO, TCAP more

We recommend SELL. Although the share price has dropped considerably

after 2Q14 earnings report, it still has a downside from FY2014 fair value

(GGM, 1.02x PBV, 12.5% long-term ROE) of B40.82 (FY2015 fair value is

B43.10). Including FY2014 expected dividend yield of 4.1%, KKP's total

return is still lower than -1%.