Kiatnakin Bank

Profit overshot estimate by 60%

Kiatnakin Bank Plc (KK)

Earnings exceeded estimate by 20%

KK posted a 4Q12 profit of Bt1,069m, up by 77% YoY and 15% QoQ. The result was 60% higher than our estimate and 10% above the Bloomberg consensus, attributable to lower loan loss provisions and impairment losses than expected (we assumed provisions of 600m; KK posted loan loss provisions of Bt355m). FY12 earnings rose 19% YoY to Bt3.4bn, which represents 113% of our FY12 projection.

Results highlights

Lending grew by 5.5% QoQ and 24.5% YoY to Bt191.9bn (driven by HP, personal loans and SME business); our estimate was 3.5%. Additionally, KK's NIM jumped 34 bps QoQ to 3.35% in 4Q12, as it made a net extra gain from its troubled debt restructuring operation; in 3Q12 the operation didn't post a net gain.

The bank holding company set loan loss provisions of Bt355m for the quarter, down by 24% YoY and 17% QoQ. Its NPLs/loans ratio dipped to 3.3% at YE12 from 3.6% at end-September. The loan loss coverage ratio inched up to 109.5% at YE12 from 103.2% at end-September.

Outlook

KK normally posts its strongest loan growth in the first- and fourth-quarter, due to seasonality for HP and SME loans. This year, synergy-building enabled by the KK-PHATRA merger should boost earnings on a YoY basis. However, the merger is also likely to entail extra expenses, as KK booked PHATRA goodwill of Bt3bn onto its balance sheet at YE12. We didn't factor this possible expense into our model. Management would presumably amortize some of that goodwill if synergy-creation between the two entities were to fall short of its expectation.

What's changed?

We maintain our FY13 earnings projection unchanged at Bt3.7bn for the moment.

Recommendation

Regardless of the possibility of an impairment related to the merger with PHATRA, KK's earnings have scope for upside from stronger fee income and better loan growth that we currently model. The stock trades at an undemanding YE13 PBV of 1.2x, far below the sectoral mean of 1.7x. We, therefore, maintain our TRADING BUY rating.