Kiatnakin Bank
Profit outstrips estimates from lower tax rate than modeled HOLD
Kiatnakin Bank Plc (KKP)
Earnings jumped to 57% above our estimate
KKP reported a 4Q15 profit of Bt980m, a rise of 74% YoY and 6% QoQ. The result was 57% greater than our estimate and 47% above the Bloomberg consensus, attributable mainly to the lower-than-modeled corporate tax. We expected KKP to post 4Q15 corporate tax of Bt260m against the released number of only Bt26m. FY15 earnings rose 21% YoY to Bt3.3bn, which represents 107% of our Bt2.96bn earnings projection.
Results highlights
Lending inched up 0.6% QoQ (down 3.6% YoY) to Bt178bn (supported by corporate and HP businesses), in line with our estimate. NIM rose 76bps YoY and 23bps QoQ to 4.71% in 4Q15, due chiefly to lower deposit rates than lending rates. Fee income jumped 32% YoY and 31% QoQ to Bt1.3bn, as there was improving bancassurance and mutual fund business and development in capital market activities.
KKP set loan-loss provisioning (LLP) at Bt824m for 4Q15, down 46% YoY and 12% QoQ. Its NPL/loan ratio was down to 5.8% at YE15 from 6.6% three months earlier, while its loan-loss-coverage ratio was 80.2%, flat from last quarter. Note that its NPL amount declined 10.2% QoQ to Bt10.4bn (from faster debt restructuring of HP and SME bad debts).
Outlook
We expect KKP to set lower LLP in 1Q16 and experience lower losses on asset impairment onwards. Thus, 1Q16 earnings projections will be up QoQ and YoY.
What’s changed?
Given the faster troubled debt restructuring (TDR) and more tax benefits on TDR, we cut our corporate tax rate to 14.5% in FY16 and 16.5% in FY17 from the former 19% in both years. We, thus, have raised our earnings forecasts by 4.0% in FY16 to Bt3.6bn and by 3.6% in FY17 to Bt4.4bn.
Recommendation
In addition to the benefit from lower corporate tax rates, the improving FY16 performance from better lending growth and well managed asset quality could provide scope for upside to our model. Additionally, KKP trades at a very cheap PBV of 0.8x in FY16 with the anticipated dividend yield of 5.7%. Given our broader earnings revision, we have raised our KKP’s target price to Bt42.00, pegged to a justified PBV of 0.9x. Our HOLD rating stands as good dividend stock play.
