Although we already held no hope toward 2Q14 profit, the core
business is even worse than expected. A positive outlook for a
recovery of the capital market transactions in 2H14 might be
negated by higher bad debt provision. Therefore, we revise down
our forecast and downgrade to SELL.
- 2Q14 profit very disappointing. Core business deteriorates
KKP announced 2Q14 net profit at only B601m, 18% lower than our
projection or the contraction of 14.1%qoq and 51.4%yoy. Net interest
income decreased while operating expense increased, worse than expected,
because the bank had to book B106m in loss from revaluation of foreclosed
assets and B440m in loss from sale of foreclosed assets, mainly from
significantly decreasing used-car price. As a result, cost to income ratio
surged to 65.24%. Non-interest income increased, better than expected.
Fee income stayed flat from 1Q14, in line with projection. Bad debt
provision decreased significantly by 57.9%qoq and 56.2%yoy, better than
expected. However, these positive factors could not offset the
aforementioned negative factors, so the net profit weakened. - Cut 2014 forecast. Additional provision still necessary
We revise down our net profit forecast for 2014-2015 by 32.7%qoq and
23.0%yoy, mainly by decreasing the growth of net loan, net interest
income, and non-interest income and increasing the assumption for
operating expense. After the revision, 2014 net profit is projected to
contract 33.7%yoy but significant growth of 32.3%yoy is expected in 2015
because of the lower base in 2014. For 2H14, a positive factor from reviving
capital market transactions would be negated by a negative factor from
higher bad debt provision. - SELL. Dividend no longer attractive
We downgrade our recommendation from BUY to SELL. New 2014 fair value
after the forecast revision is B40.82 (from B52.20), GGM, based on 1.02x
PBV (from 1.27x) and long-term ROE forecast of 12.5% (from 14.4%).
2014 dividend yield is re-estimated at 3.82%p.a. (versus 6%p.a.
previously, paying semiannually), which is no longer attractive.