Kiatnakin Bank

Kiatnakin Bank Plc (KKP) 

Investment thesis

We maintain our FY15 earnings projection unchanged at Bt3.5bn, up 33% YoY (following a 40% dive last year). HP business will recover gradually in 2H15, but the bottom-line driver will be lighter loan loss provisions and shallower losses on sales of repossessed cars. There should also be some SME and corporate lending growth. KKP trades at a cheap YE15 PBV of 0.9x with anticipated dividend yields of 5% for FY15 and 5.5% for FY16. We, thus, reiterate our HOLD rating for KKP as dividend stock play).

FY15 loan growth target of 6%, led by SME and corporate

Management’s loan growth target is 6% following a 3.4% contraction last year—10-15% commercial business expansion (a 2.7%% decline in FY14) and retail lending that is flattish or down slightly (a contraction of 7.3% in FY14). KKP anticipates an FY15 loan spread of 3.9%, flat YoY. 

We have cut our FY15 lending growth assumption from 9% to 6%, given the slow economic environment. However, we have raised our FY15 NIM assumption from 3.6% to 3.75%, as we expect better funding cost management. Our fatter NIM assumption should roughly offset the effect of a diminished lending projection. Thus our FY15 earnings forecast remains unchanged.

FY15 LLP has room to fall sharply YoY

KKP told the analyst meeting that its FY14 loan loss provisions have peaked and will decline in FY15. Note that KKP set FY14 LLPs of Bt3.2bn, including impairments on HP for used cars totaling Bt2bn—at YE14 45% of its HP portfolio comprised used cars. We currently assume FY15 LLPs of Bt2.4bn in our model. 

The bank holding company targets an NPLs/loans ratio of below 5.6% at YE15, flattish YoY. KKP may set lighter LLPs than we currently assume if the economy strengthens significantly during 2H15.

If the economy improves, NPA sales would provide profit upside

Management said that FY14 sales of non-performing assets (NPA) fell to Bt2.1bn from Bt2.8bn in FY13. KKP booked gains of Bt770m from NPA sales last year. We assume NPA sales of Bt2bn in FY15 and a smaller gain of Bt350m. If KKP were to sell NPAs for bigger gains than modeled, there would be scope for upside to our FY15 earnings forecast. At YE14, it reported NPAs totaling Bt4bn, which it intends to sell within the next two years.