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Kiatnakin Bank

Capital market business is hope of 2Q14 Hold

Kiatnakin Bank Plc (KKP)

1Q14 profit substantially below expectation

KKP posted 1Q14 net profit at B700m, 24% lower than our

projection and making up only 16% of FY2014 net profit forecast.

The profit contracted sharply 32.0%qoq and 39.8%yoy, making an

eight-quarter low. Income from core businesses declined

substantially, especially loan-related fee income and income from

capital market transactions. Likewise, other operating income

plunged significantly, owing to recognition of B412m in loss from

repossessed car selling in this quarter, which could not be negated

by B137m in profit booked from non-performing asset (NPA) selling.

Moreover, debt provisioning expense leapt 40.6%qoq, with the

credit cost of as much as 158bp, making a new high in three

quarters after hitting the peak of 165bp in 2Q13. Meanwhile, NPL

grew more than B1bn in 1Q14, mainly from property and car leasing

loans. Net interest income, on the other hand, still grew 3.9%qoq -

better than expected. NIM shifted 7bp to 3.79%; although loan yield

dropped from recognition of corporate loans of B6bn in this quarter,

funding cost decreased significantly because the bank has had more

CASA deposits.

- Capital market business is hope of 2Q14

We maintain our earnings profit for 2014-2015, projecting the net

profit in 2014 to drop 1.5%yoy. Still, we project to see a business

recovery in 2H14 if the political problem improves. Particularly, the

car leasing business that has been at the bottom of this round of

crisis would gradually revive in the second half of the year (loan will

grow; debt provision and loss from repossessed car will decrease).

For 2Q14, the capital market business would be the hope of the

quarter. A recovery of the capital market would help to boost KKP's

fee income from securities trading and investment profit from 1Q14.

Nevertheless, losses from repossessed car sales and high debt

provisioning are still foreseen.

- Hold for dividend

We recommend only holding KKP for its dividend of above 6-8%p.a.

on average (paying semiannually) in the next three years. 2014 fair

value (GGM), at 1.02x PBV and long-term ROE forecast of 13%, is

B42, no upside left.


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