Kiatnakin Bank

Profit forecaast & target price upgrades

Kiatnakin Bank Plc (KK)

Investment thesis

We have raised our KK FY13 earnings projection by 10% to Bt4.4bn. The upgrade was prompted by news that its investment banking department (formerly Phatra Securities) was appointed both sole financial advisor and lead underwriter for the BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF). We have revised up our KK FY13 fee income forecast by 15% to Bt3.4bn. The higher earnings projection means that our target price jumps 15% to Bt69, pegged to a YE13 PBV target of 1.68x. There is 10% upside to our new target price. Our TRADING BUY rating stands.

BTSGIF deal will contribute Bt500m in 2Q13

KK won deals from BTS to act as both sole financial advisor (FA) for its new infrastructure fund, BTSGIF, and as lead underwriter of the fund's IPO, which at Bt62-62.5bn will be the biggest in the history of the SET. BTSGIF will launch its IPO, March 29- April 4. We estimate that KK will book FA and underwriting fees totaling Bt500m in 2Q13. As such, we have raised our FY13 fee income assumption by 15% to Bt3.4bn.

Target price upgrade

In anticipation of the huge fee income from BTSGIF, we have revised up our FY13 earnings forecast by 12% to Bt4.48bn. The deal pushes up our KK EPS projection for this year by 0.50 to 5.38 and our ROE assumption from 12% to 13%. Based on an increased ROE of 13% and unchanged assumptions for Ke (10.5%) and industry growth (5%), we have derived a new target price of Bt69, pegged to a justified PBV of 1.68x.

Still further scope for upside

Although we have revised up our KK earnings model to factor in the cash from the BTSGIF deal, there remains scope for upside to its bottom-line from the possibility of lower loan loss provisioning. Management said that the current loan loss coverage ratio of 110% is above its comfort threshold of 100%. Therefore, LLPs are likely to decline YoY in FY13 (KK set loan loss provisions of Bt1.6bn last year). We currently assume FY13 LLPs of Bt1.3bn, down 16% YoY. Furthermore, KK's lending growth target at 19%, but we conservatively model for only 12%. We will review our loan growth assumption when the bank announces its 1Q13 earnings.