Kiatnakin Bank

Up forecast and 2013's FV to B80 from BTS deal fee income. Market volume grows BUY

Kiatnakin Bank Plc (KK)

- BTS infra fund deal reaches conclusion. To book fee income in 2Q13. Market volume is better than expected

- Up forecast by including fee income and market volume;2013's profit beat peers

- Reiterate to buy. New FV is B80, implying 20% upside. Attractive div yield CGR

- BTS infra fund deal reaches conclusion. To book fee income in 2Q13. Market volume is better than expected

The Securities and Exchange Commission (SEC) has eventually approved an

establishment of BTS infrastructure fund (BTSGIF) valued totaling at B60bn

through issuing of 5,788 million investment units with the IPO price range of

B10.40-10.80. The fund will open for subscription on 29 March - 4 April. This

largest investment banking (IB) deal in 2013 will benefit PHATRA, after its

complete merger with KK, as it is a financial advisor for the deal. We estimate

the fee income that will be booked in 2Q13 at B400-500m, or 28% of 2Q13's

net profit forecast and 6.2% of FY2013's net profit forecast. Capital market

businesses under PHATRA's operation includes investment banking, investment

& trading, and private wealth, which are key businesses that would drive overall

net profit of the industry in 2013 given the currently prosperous market

condition with average daily trading volume of as large as B60bn a month at

present. Accordingly, we are confident that the brokerage income, fee income

from investment banking business, and investment portfolio of B10bn will help

compensate for a dull outlook of KK's banking business in 2013. KK's net loan

growth in 2013 is projected to decrease from the prior year to only 20%yoy,

especially for car hire-purchase loans after the government's first car scheme

already expired. Moreover, loan spread is anticipated to contract 20bp from a

decline of yield after rising to an unusual high level after the end of the

alleviation for the flood-affected clients. In addition, for the special asset

management business or SAM, the bank has lowered the target for NPA sale to

only B2.5bn from B3.2bn in the previous year, so profit from NPA sale is

projected to fall 22%yoy to B1bn.

- Up forecast by including fee income and market volume; 2013's profit beat peers

We revise up KK's profit forecast in 2013-14 by 6.2% and 5.4%, respectively,

mainly by increasing an assumption for fee income significantly by 9.9% and

6.4%, respectively and daily trading volume of the market to B40bn from

B30bn. As a result, 2013-14's net profit is projected to grow remarkably at

52.5%yoy and 17.3%yoy, respectively, which is the highest growth in the

banking sector (excluding TCAP that will book an extraordinary profit of more

than B7bn in 2013 from a sale of investment in TLife).

- Reiterate to buy. New FV is B80, implying 20% upside. Attractive div yield

We reiterate our BUY recommendation. New 2013's fair value, using GGM; at

new PBV of 2x from 1.8x; and under long-term ROE forecast of 17.7percent from

17%, is B80, versus the previous fair value of B70. The new fair value implies

20% upside, with average dividend yield expected the most notable among

peers at 4-5% p.a. (paid semiannually). Lately, the bank has announced 2H12's

dividend at B1.40/share or a dividend yield of 2.1percent for a half year (payout ratio

is 58%). XD date is on 2 May 2013 and payment date is on 23 May 2013.