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Kiatnakin Bank

No catalyst in short term HOLD

Kiatnakin Bank Plc (KKP)

- Asset quality is priority

For a summary of KKP's performance in 1Q14, the earnings were

depressed by the very high debt provision expense; despite the bank's

new strategy of collective approach, the expense still did not decrease

because it had to make allowance for risks from other business

fluctuation as a result of the unfavorable economy. Therefore, we

estimate 2014 credit cost (debt provision expense to total loan) at

140bp. The major risk has still been used-car leasing quality that had

caused and would be causing loss from repossessed car sales for the

rest of the year. At the same time, property loans have signaled a

greater negative sign as house buyers slowed down their buying

decision on concerns toward the economy. NPL increased to 4.09% of

total loan at end-1Q14, making a quarterly high in three years. Though

there is the hope from the growth of low-risk corporate loans, mainly

syndicated loans with other banks, which might provide an upside of

over B10bn in 2014 (B6bn already been issued to CPALL in 1Q14), it

would depress overall yield. For a capital strategy, the bank has

changed to focus on increasing CASA deposit and issuing short-term

bonds in order to sustain NIM.

- 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. 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 profit from direct investment.

- Combined return is close to current share price

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. However, when combined with the projected dividend, the

total return is still close to the current share price.




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