17 January 2012 Kiatnakin Bank - KK Closing Price BUY Bt30 target price (Upgrade) Bt38 (+26.7%) 4Q11 profit above forecast on lower tax expenses KK posted a 4Q11 net profit of Bt682.78m, down 21.9% QoQ due chiefly to the flooding impact but tax savings led its 4Q11 results to come in 20% better than our forecast. For the full year 2011, net profit was flat YoY as strong loan growth of as much as 26.5% and higher net fee income were offset by mounting funding costs, the flooding impact, branch expansion expenses and flood-related expenses as well as higher provisions. This year hire purchase business is expected to be a key earnings driver for KK while the prospects for other businesses such as wealth management and securities brokerage look unexciting. We upgrade KK shares to 'BUY' as our 2012 price target of Bt38/share now offers more than 15% from current trading levels. 4Q11 profit down 21.9% QoQ but above forecast KK posted a 4Q11 net profit of Bt682.78m, down 21.9% QoQ due chiefly to the flooding impact. However, tax savings thanks to some tax-free revenues and the transfer of general provision to specific provision led its 4Q11 results to come in 20% better than our Conso' forecast of Profits Bt569.13m. EPS DPS BV ROE P/E Yiel Ending (Btm) (Bt) (Bt) (Bt) (%) (x) (% On a pre-tax basis, 12/09 KK's A quarterly 2,229 profit dropped 4.26 55.4% 2.00 QoQ 34.24 and 49.2% 12.85 YoY 7.04 to 6.6 a mere Bt493m as (1) net interest income slipped 7.0% QoQ as a result of 12/10 A 2,840 5.02 2.40 36.53 14.19 5.98 8.0 mounting costs and a 30 bps QoQ drop in loan spread to 3.8% caused by the impact of flooding on 12/11 loans, A (2) non-interest 2,859 4.51 income 2.25 fell in several 36.60 items 12.33 including 6.66 7.5 gain on investment 12/12 and gain E from 3,014 the sale and 4.75 revaluation 2.38 39.10 of NPA, (3) 12.55 expenses 6.31 rose 14.5% QoQ due 12/13 to the E flooding 3,542impact 5.58 with the 2.79 cost to 42.31 income 13.72 ratio climbing 5.37 7.9 9.3 to 59.4% from 45.4% in 3Q11, and (4) provisions jumped 25.2% QoQ. 2011 profit flat YoY For the whole of 2011, net profit came in at Bt2.86b, flat YoY as strong loan growth of as much as 26.5% and a 23.2% YoY rise in net fee income were offset by (i) a 70 bps increase in funding costs to 3.4%, (ii) the impact of the flooding, affecting 9-11% of total loans both directly and indirectly according to KK's estimate, (iii) expenses related to the opening of 10 new branches and flood-related expenses and (iv) rising provisions to bring them on par with the industry's average. At end-2011, NPL eased to 3.5% of total loans from 4.6% in 2010 and NPL coverage ratio rose to 108.4%. Capital adequacy ratio (CAR) stood at 16.1% with tier-1 capital of 15.4%. Sasikorn Charoensuwan, CFA Analyst Reg #9744 Email : sasikorn@philllip.co.th Tel. 66 2 635 1700 #480 Ref No: CO2555_0040 http://www.poems.in.th Please see back page for disclaimer 4/26
17 January 2012 Kiatnakin Bank - KK Upgrade to 'BUY' with 2012 price target of Bt38/share We believe positive earnings momentum would continue in 2012 with hire purchase business expected to be a key earnings driver for KK. The prospects for other businesses such as wealth management and securities brokerage however look unexciting as KK is in the process of merging with PHATRA. The tender offer for outstanding shares of PHATRA is expected to be completed in 3Q12. We maintain our 2012 price target of Bt38/share for KK. We also expect KK to pay 2H11 dividend of Bt1.25/share after it paid an interim dividend of Bt1/share in 1H11. We plan to place our profit estimates for KK under review after it unveils its 2012 financial target. We upgrade KK shares to 'BUY' as our 2012 price target of Bt38/share now offers more than 15% from current trading levels with an estimated un-annualized dividend yield of about 4%. KK (CON) - Btm 4Q11 3Q11 4Q10 YoY+/- QoQ+/- 2554 2553 YoY+/- Interest income 3,091.36 3,060.61 2,391.15 29.28% 1.00% 11,296.39 8,767.25 28.85% Interest expenses 1,532.31 1,384.27 812.13 88.68% 10.69% 4,820.66 2,941.64 63.88% Net interest income 1,559.04 1,676.34 1,579.01-1.26% -7.00% 6,475.73 5,825.61 11.16% Fees and services income 437.26 437.76 378.29 15.59% -0.11% 1,573.43 1,255.56 25.32% Fees and services expenses 44.62 48.55 29.35 52.04% -8.10% 154.09 103.54 48.82% Net fees and services income 392.64 389.21 348.94 12.52% 0.88% 1,419.34 1,152.01 23.20% Gains on tradings & FX 27.71-49.52 13.50 105.25% 155.97% -11.64 108.53-110.73% Gain on investments -5.50 64.51 191.42-102.87% -108.53% 179.54 258.31-30.49% Gain from sale of foreclosed assets 325.08 398.12 452.68-28.19% -18.35% 1,244.85 1,482.58-16.03% Gain from revaluation of foreclosed assets 17.44 167.16-127.36 113.69% -89.57% 110.75-71.83 254.19% Other operating incomes 47.36 57.27 49.85-5.00% -17.31% 221.84 247.90-10.51% Total operating incomes 2,363.78 2,703.10 2,508.05-5.75% -12.55% 9,640.41 9,003.11 7.08% Other operating expenses Employee's expenses 621.53 595.03 507.01 22.59% 4.45% 2,340.28 1,817.12 28.79% Directors remuneration 2.70 2.87 1.37 97.44% -5.97% 13.33 9.18 45.15% Premises and equipment expenses 232.66 215.34 198.71 17.09% 8.04% 859.23 703.90 22.07% Taxes and duties 78.87 71.26 69.00 14.29% 10.67% 270.84 208.40 29.96% Other expenses 469.08 342.09 944.05-50.31% 37.12% 1,457.60 1,714.86-15.00% Total Other operating expenses 1,404.83 1,226.59 1,720.14-18.33% 14.53% 4,941.28 4,453.47 10.95% Impairment loss of loans and debt securities 465.95 372.07-182.94 354.70% 25.23% 1,277.64 469.96 171.86% Income before income tax 493.00 1,104.44 970.85-49.22% -55.36% 3,421.49 4,079.69-16.13% Income tax -191.31 215.31 465.61-141.09% -188.85% 535.21 1,213.44-55.89% Net income 684.31 889.13 505.24 35.44% -23.04% 2,886.27 2,866.25 0.70% Other comprehensive incomes Gain on fair value reserves on investments in loans -10.22-32.97-160.02 93.62% 69.02% -67.86-87.17 22.15% Gain on fair value reserves on available-for-sale securities 175.33-103.47-443.14 139.56% 269.45% -16.95 405.43-104.18% Loss from estimates of employee benefits -39.18 0.00 0.00 0.00% 0.00% -39.18 0.00 0.00% Total other comprehensive incomes 125.94-136.44-603.15 120.88% 192.30% -123.99 318.26-138.96% Total comprehensive incomes 810.25 752.69-97.91 927.54% 7.65% 2,762.28 3,184.51-13.26% Net income attributable to: Equity holders of the Bank 682.78 874.42 490.91 39.08% -21.92% 2,858.96 2,840.15 0.66% Non-controlling interest 1.53 14.72 14.33-89.30% -89.58% 27.31 26.10 4.65% 684.31 889.13 505.24 35.44% -23.04% 2,886.27 2,866.25 0.70% Total comprehensive incomes attributable to: Equity holders of the Bank 806.16 736.81-114.14 806.30% 9.41% 2,730.34 3,157.45-13.53% Non-controlling interest 4.09 15.88 16.23-74.81% -74.26% 31.94 27.06 18.03% 810.25 752.69-97.91 927.54% 7.65% 2,762.28 3,184.51-13.26% EPS of the Bank: Basic EPS (Bt) 1.08 1.38 0.84 28.57% -21.74% 4.52 5.20-13.08% Diluted EPS (Bt) 1.08 1.37 0.80 35.00% -21.17% 4.50 4.97-9.46% http://www.poems.in.th Please see back page for disclaimer 5/26
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