KKP reported a 2Q14 profit of Bt601m, down by 51% YoY and 14% QoQ. The result was 39% lower than our model and 34% below the Bloomberg consensus, attributable mainly to a negative surprise—a Bt440m loss on sales of foreclosed assets (mainly repossessed cars) during the quarter. 1H14 earnings represent just 30% of our old FY14 projection of Bt4.4bn.
Lending dipped 0.9% QoQ (but was up 1.7% YTD) to Bt194bn, led by an HP contraction (in line with our assumption). NIM was 3.46% in 2Q14, down by 14 bps QoQ and 79 bps YoY. Fee income dived by 37% YoY and 18% QoQ to Bt857m, due to less activity in the capital market and the absence of any significant IB deals during the quarter.
KKP set loan loss provisions of Bt327m for 2Q14, down by 56% YoY and 58% QoQ. Its NPLs/loans ratio rose to 5.6% from 4.2% at end-March, led by HP for used cars, while its loan loss coverage ratio dived to 69% at end-June from 91% three months earlier.
We assume that KKP will book shallower HoH losses on the sale of foreclosed assets sales in 2H14. In that case, 2H14 earnings would rise HoH. Note that used car prices have dived about 35% since mid-2012, while bad debts on HP for cars have shot up. As such, KKP booked an Bt800m loss on asset deterioration for 1H14.
Our FY14 loan growth forecast has been pared back from 10% to 5% and we have revised up our losses-on-asset sales (mostly repossessed vehicles) assumption from Bt250m to Bt900m. Consequently, our FY14 earnings projection dives 27% from our earlier number to Bt3.2bn, a plunge of 28% YoY.
Because we now have a diminished expectation for FY14 earnings, our YE14 target price falls 6% to Bt46, pegged to an unchanged justified PBV of 1.0. However, the stock offers fair dividend yields of 4% for FY14 and 4.5% for FY15. We regard KKP as a dividend play. HOLD!