Kiatnakin Bank
Kiatnakin Bank Outperform (15E TP Bt34.00)
Company Update
Close Bt30.75
Banking July 29, 2015
Earnings upgrade/Earnings downgrade/Overview unchanged
Risk‐return turning positive
FY15
FY16
Consensus EPS (Bt)
3.724
4.399
KT ZMICO vs. consensus Share data
‐4.4%
‐6.3%
Reuters / Bloomberg
KKP.BK/KKP TB
Paid‐up Shares (m)
846.75
Par (Bt)
10.00
Market cap (Bt bn / US$ m)
26.00/748.00
Foreign limit / actual (%)
44.00/31.62
52 week High / Low (Bt)
44.50/30.75
Avg. daily T/O (shares 000)
965.00
NVDR (%)
5.92
Estimated free float (%)
76.48
Beta
0.64
URL
www.kiatnakin.co.th
CGR
Prapharas Nonthapiboon Analyst, no 17836 [email protected] 66 (0) 2695‐5872
Upgrade to Outperform on cheap valuation and improving outlook We switch our rating for KKP to Outperform from Underperform even though we trimmed our earnings. The main reasons behind our upgrade are its cheap valuation (with 2015‐16E P/BV of below 0.7x and the current P/BV almost near its tough level, see Figure 2), which should largely reflect most concerns on the stock. Moreover, we view that earnings should have bottomed out in 2014 and see a much improved outlook for auto hire purchase loans, especially on the asset quality side. In addition, its solid dividend yield of ~6‐7% should be another catalyst. Hire purchase business sees improvement, especially on asset quality KKP updated the group’s latest operating environment and the potential outlook. Specficially, the main bright spot will be the auto hire purchase business, which should already have bottomed out and see gradual improvement, especially in terms of the asset quality side and the much lower losses on repossessed cars. Meanwhile, commercial lending may still see risk of asset quality deterioration but this should be mangeable given its considerable excess reserve and more proactive asset quality control. Cut net profit estimates for 15‐16E by 16‐18% We cut the net profit (NP) forecasts for KKP by 16‐18% for 2015‐16E, primarily to fine‐tune with the latest results, the bank’s latest business guidance and the latest operating environment. Our main revisions are a higher provision and lower income related to capital makets. However, the main earnings cushion could come from a higher‐than‐expected loan spread and a much lower loss on repossessed cars. Following our NP revision, we cut our 15E target price estimate for KKP to Bt34.00/share for an implied target P/BV of 0.8x from Bt41.00/share previously. Asset quality likely to be managealble, especially on auto loans Although NPLs still increased QoQ in 2Q15 to 6.9% from 6.5%, the hike was at a much slower pace than the past several quarters. Note that NPLs and the losses from repossessed cars for auto hire purchase should see a declining trend, which will be a good cushion for its earnings. Meanwhile, NPLs for residential and SME loans may still see some deterioration on the weak economy but we think this should be manageable as the bank was already stringent in terms of qualitative NPLs and the extra reserve in the past several quarter coupled with its proactive NPL control. Financials and Valuation FY Ended 31 Dec PPOP (Btm) Net profit (Btm) EPS (Bt) EPS growth (%) Book value (Bt) Dividend (Bt) FY Ended 31 Dec PER (X) PBV (X) Dividend yield (%) ROE (%)
2013 5,058 4,418 5.27 29.3% 41.66 2.65 2013 5.84 0.69 8.62 13.0%
2014 5,752 2,636 3.13 ‐40.6% 42.77 1.85 2014 9.83 0.69 6.02 7.4%
2015E 4,983 3,005 3.56 14.0% 44.48 1.90 2015E 8.63 0.69 6.17 8.2%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
2016E 4,650 3,470 4.12 15.5% 46.71 2.06 2016E 7.47 0.66 6.69 9.0%
2017E 4,616 4,311 5.11 24.2% 49.76 2.56 2017E 6.01 0.62 8.32 10.6%
Auto hire purchase business sees improvement, especially on the asset quality side KKP updated the group’s latest operating environment and the potential outlook. Specficially, the main bright spot will be the auto hire purchase business, which should have already bottomed out and see gradual improvement, especially in terms of the asset quality side and much lower losses on repossessed cars. NPLs are likely to be manageable and we should see a gradual decline in NPLs for auto hire purchase loans. Meanwhile, the losses on repossessed cars should have already peaked in 2H14 and see a declining trend going forward, which should be a main driver to its earnings. However, on the lending side, it should still see a loan drop for auto hire purchase loans at least until 1H16E due to weak auto loan demand and the higher repayment rate vs. new lending. For the commercial lending side, especially on residential project and SME lending, it may still see some risk of asset quality deterioration given the likelihood of a prolonged weak economy. However, the bank was prudent with regard to qualitative NPLs in 2014 and in 1Q15 and already set a massive extra provision in 4Q14 and 1Q15. However, we still expect its provison to remain high in 2H15 for conservativeness. Meanwhile, corporate lending should see continuing improvement with new loan approvals of Bt8bn during 3Q15 and the drawdown of new lending of ~Bt3bn+ in 3Q15. The capital market units may see weaker momentum in 2H15 vs. 1H15 due to the unfavourable capital market in 2H15. Meanwhile, we expect the performance of the capital maket units to improve in 2016E, especially the hedge fund unit, which has seen better improvement. Trim net profit estimates for 15‐16E by 16‐18% We cut the net profit (NP) forecasts for KKP by 16‐18% for 2015‐16E, primarily to fine‐tune with the latest results, the bank’s latest business guidance as well as the tough operating environment due to higher economic risk. Our main revisions are 1) a higher provision as the bank set an extra provision in 1Q15; and 2) lower income related to capital makets, especially in terms of lower gain on investment and fee income. However, the main earnings cushion could come from a higher‐than‐expected loan spread and a much lower loss on repossessed cars, see Figure 1. Following our NP revision, we cut our 15E target price estimate for KKP to Bt34.00/share for an implied target P/BV of 0.8x from Bt41.00/share previously. Figure 1: Key changes in our earnings revision 2015E Net profit (Btmn) Net profit change from previous forecasts (%) Net profit change YoY (%) Loan growth (%) Provision for loan loss (Btmn) Provision for loan loss (bps of loans) Gain (loss) on investments Net Fees and service income Gain (loss) on FX and derivative transactions Gain (loss) from sale of repossessed cars Fee income growth (%) Loan spread Source: KT ZMICO Research
Previous 3,561
‐1% 2,013 1.10% 167 3,528 570 ‐1,700 2% 4.07
2016E New 3,005 ‐16% 14% ‐5% 2,704 1.55% 105 3,399 482 ‐1,130 ‐2% 4.15
Previous 4,250
5% 1,928 1.00% 203 3,646 615 ‐1,200 3% 4.01
New 3,470 ‐18% 15% 1% 2,213 1.25% 136 3,466 489 ‐900 2% 4.13
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
Figure 2: KKP's P/BV band and sensitivity of market prices based on P/BV at different standard deviation levels (X) 1.8
2015E
PBV (x) Implied market
+3 S.D.
1.6
+2 S.D.
1.4
+1 S.D. +0.5 S.D.
1.2 1.0 0.8
Avg. -0.5 S.D.
-1 S.D.
0.6
Jul-15
Jan-15
Mar-14
Aug-14
Apr-13
Sep-13
Nov-12
Dec-11
May-12
Jan-11
Jun-11
Feb-10
Aug-10
Oct-08
Mar-09
Nov-07
May-08
Jun-07
Jan-07
0.2
Sep-09
-2S.D.
0.4
Source: Bloomberg, KT ZMICO Research
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
1.4
61
97
+1.5SD
1.2
55
80
+1.0SD
1.1
50
63
+0.5SD
1.0
45
46
Average
0.9
39
28
-0.5SD
0.8
34
11
-1.0SD
0.7
29
-6
-1.5SD
0.5
24
-23
-2.0SD
0.4
18
-40
Figure 3: KKP's PER band and sensitivity of market prices based on PER at different standard deviation levels 2015E
(X) 18
PER (x)
16 14 12
6
Upside/ Downside
price (Bt)
to current price (%)
+2 S.D.
+2.0SD
14.1
50
64
+1 S.D.
+1.5SD
12.7
45
47
+1.0SD
11.2
40
30
+0.5SD
9.8
35
13
10 8
Implied market
Avg. -1 S.D.
Average
8.3
30
-4
2
-0.5SD
6.8
24
-21
0
-1.0SD
5.4
19
-38
-1.5SD
3.9
14
-55
-2.0SD
2.4
9
-72
Source: Bloomberg, KT ZMICO Research
Jul-15
Jan-15
Mar-14
Aug-14
Sep-13
Apr-13
Nov-12
Dec-11
May-12
Jan-11
Jun-11
Aug-10
Feb-10
Sep-09
Oct-08
Mar-09
Nov-07
May-08
Jan-07
-2 S.D.
Jun-07
4
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 6
Statement of Comprehensive Income (Btmn) Year‐end 31 Dec Interest on Loans and Deposits
2013 4,641
2014 4,976
2015E 4,502
2016E 4,780
2017E 5,596
Hire Purchase Income
9,834
9,744
8,818
8,325
8,476
777
617
614
715
821
Interest & Dividend on Securities Investment in FRA Unit trusts
557
606
511
402
322
15,809
15,942
14,445
14,222
15,214
7,462
7,016
5,839
5,972
6,746
Net Interest Income
23,270
22,958
20,284
20,194
21,960
Non‐Interest Income
6,163
3,813
4,444
4,865
5,371
29,433
26,772
24,728
25,060
27,331
Operating Expenses
6,879
6,534
6,626
6,606
6,818
Operating Profit
6,031
6,122
5,697
5,476
5,636
Provision (Reversal) for loan loss
Total Interest Income Interest Expenses on Borrowing
Operating Income
2,240
3,199
2,704
2,213
1,690
Taxes
951
353
669
773
960
Minority Interest
‐22
‐17
‐45
‐53
‐61
Net Profit
4,418
2,636
3,005
3,470
4,311
PPOP
5,058
5,752
4,983
4,650
4,616
5.27
3.13
3.56
4.12
5.11
Cash & Money Market Items
2013 10,959
2014 8,299
2015E 7,769
2016E 6,843
2017E 6,093
Net Investment
30,913
32,629
36,795
38,615
40,709
EPS (Bt)
Statement of Financial Position (Btmn) Year‐end 31 Dec
56,785
60,525
63,099
67,908
75,369
Hire Purchase Loans ‐ Gross
Finance & Securities Loans ‐ Gross
134,019
124,252
111,827
109,590
112,878
Net Loans
184,778
177,480
165,586
166,754
176,715
Total Assets
249,109
240,407
244,310
248,730
262,167
Deposits
145,996
132,315
129,404
129,469
137,172
Total Borrowings
195,222
184,881
186,219
187,559
197,115
Total Liabilities
21,998
19,431
33,389
35,594
37,540
Paid‐up Capital
8,388
8,428
8,428
8,428
8,428
Retained Earning
15,919
16,757
17,861
19,274
21,229
Total Equity
34,944
36,048
37,493
39,365
41,941
Source: KTZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 6
Valuations and Ratio Analysis Year‐end 31 Dec
2013
2014
2015E
2016E
2017E
5.27
3.13
3.56
4.12
5.11
Per/Share Data (Bt) EPS DPS
2.65
1.85
1.90
2.06
2.56
BVPS
41.66
42.77
44.48
46.71
49.76
PE (X)
5.84
9.83
8.63
7.47
6.01
P/BV (X)
0.69
0.69
0.69
0.66
0.62
Dividend yield (%)
8.62
6.02
6.17
6.69
8.32
Net Profit
30.3
‐40.3
14.0
15.5
24.2
EPS
29.3
‐40.6
14.0
15.5
24.2
Net Interest Income
17.4
6.9
‐3.6
‐4.1
2.6
Multiplier
Percentage Growth (%)
Non Interest Income
42.7
‐38.1
16.5
9.5
10.4
Operating Expense
17.7
‐5.0
1.4
‐0.3
3.2
Operating Profit
68.8
1.5
‐6.9
‐3.9
2.9
Loans
12.9
‐3.2
‐5.3
1.5
6.1
Deposits
‐4.6
‐9.4
‐2.2
0.0
6.0
NPLs
29.4
42.1
25.0
7.0
‐15.0
NPLs (Btmn)
7,283
10,352
12,940
13,846
11,769
NPLs/Loans
3.8
5.6
7.4
7.8
6.3
99.9
81.5
80.0
85.0
107.2
Equity/Asset
14.0
15.0
15.3
15.8
16.0
Tier I to Risk Assets
13.1
14.8
14.5
14.6
14.8
Asset Quality Ratio (%)
Loan Loss Reserve/NPLs Capital & Liquidity Ratio (%)
Total Capital Adequacy Ratio
13.7
15.2
15.2
15.4
15.7
Loan to Deposit & Borrowing
131.2
144.7
139.8
140.9
140.2
Profitability Ratio (%) ROA
1.8
1.1
1.2
1.4
1.7
ROE
13.0
7.4
8.2
9.0
10.6
Cost to Income
47.4
51.3
50.8
50.4
49.3
Net Interest margin
3.71
3.92
3.89
3.75
3.72
Loan spread
3.90
3.98
4.15
4.13
4.08
Key Assumptions
2013
2014
2015E
2016E
2017E
Loan Growth ‐ Net
12.9
‐3.2
‐5.3
1.5
6.1
Cost to Income
47.4
51.3
50.8
50.4
49.3
Net Interest margin Provision (Btmn) Provision (% of loans)
3.7
3.9
3.9
3.8
3.7
2,240
3,199
2,704
2,213
1,690
1.18
1.74
1.55
1.25
0.90
Source: KTZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 6
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 6
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th
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
3 Floor, Shinnawatra Tower II,
8 Floor, Ton Son Tower,
1291/1 Phaholyothin Road,
900 Ploenchit Road, Lumpini,
Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
Phayathai, Bangkok 10400
Pathumwan, Bangkok 10330
Pathumwan, Bangkok 10330
Telephone: (66-2) 686-1500
Telephone: (66-2) 626-6000
Telephone: (66-2) 627-3550
Fax. (66-2) 686-1666
Fax. (66-2) 626-6111
Fax. (66-2) 627-3582, 627-3600
Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
Chachoengsao Branch
Viphavadee Branch
Phitsanulok Branch
G Floor, Lao Peng Nguan 1 Bldg.,
Krung Thai Bank, Singhawat Branch
333 Soi Cheypuand, Viphavadee-Rangsit Road,
114 Singhawat Road,
Ladyao, Jatujak, Bangkok 10900
Muang, Phitsanulok 65000
Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
th
Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
Fax. (043) 389-209
Fax: (074) 355-534
Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
16th Fl., Rama 1 Rd, Pathumwan,
Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970
624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
Company Update
Close Bt30.75
Banking July 29, 2015
Earnings upgrade/Earnings downgrade/Overview unchanged
Risk‐return turning positive
FY15
FY16
Consensus EPS (Bt)
3.724
4.399
KT ZMICO vs. consensus Share data
‐4.4%
‐6.3%
Reuters / Bloomberg
KKP.BK/KKP TB
Paid‐up Shares (m)
846.75
Par (Bt)
10.00
Market cap (Bt bn / US$ m)
26.00/748.00
Foreign limit / actual (%)
44.00/31.62
52 week High / Low (Bt)
44.50/30.75
Avg. daily T/O (shares 000)
965.00
NVDR (%)
5.92
Estimated free float (%)
76.48
Beta
0.64
URL
www.kiatnakin.co.th
CGR
Prapharas Nonthapiboon Analyst, no 17836 [email protected] 66 (0) 2695‐5872
Upgrade to Outperform on cheap valuation and improving outlook We switch our rating for KKP to Outperform from Underperform even though we trimmed our earnings. The main reasons behind our upgrade are its cheap valuation (with 2015‐16E P/BV of below 0.7x and the current P/BV almost near its tough level, see Figure 2), which should largely reflect most concerns on the stock. Moreover, we view that earnings should have bottomed out in 2014 and see a much improved outlook for auto hire purchase loans, especially on the asset quality side. In addition, its solid dividend yield of ~6‐7% should be another catalyst. Hire purchase business sees improvement, especially on asset quality KKP updated the group’s latest operating environment and the potential outlook. Specficially, the main bright spot will be the auto hire purchase business, which should already have bottomed out and see gradual improvement, especially in terms of the asset quality side and the much lower losses on repossessed cars. Meanwhile, commercial lending may still see risk of asset quality deterioration but this should be mangeable given its considerable excess reserve and more proactive asset quality control. Cut net profit estimates for 15‐16E by 16‐18% We cut the net profit (NP) forecasts for KKP by 16‐18% for 2015‐16E, primarily to fine‐tune with the latest results, the bank’s latest business guidance and the latest operating environment. Our main revisions are a higher provision and lower income related to capital makets. However, the main earnings cushion could come from a higher‐than‐expected loan spread and a much lower loss on repossessed cars. Following our NP revision, we cut our 15E target price estimate for KKP to Bt34.00/share for an implied target P/BV of 0.8x from Bt41.00/share previously. Asset quality likely to be managealble, especially on auto loans Although NPLs still increased QoQ in 2Q15 to 6.9% from 6.5%, the hike was at a much slower pace than the past several quarters. Note that NPLs and the losses from repossessed cars for auto hire purchase should see a declining trend, which will be a good cushion for its earnings. Meanwhile, NPLs for residential and SME loans may still see some deterioration on the weak economy but we think this should be manageable as the bank was already stringent in terms of qualitative NPLs and the extra reserve in the past several quarter coupled with its proactive NPL control. Financials and Valuation FY Ended 31 Dec PPOP (Btm) Net profit (Btm) EPS (Bt) EPS growth (%) Book value (Bt) Dividend (Bt) FY Ended 31 Dec PER (X) PBV (X) Dividend yield (%) ROE (%)
2013 5,058 4,418 5.27 29.3% 41.66 2.65 2013 5.84 0.69 8.62 13.0%
2014 5,752 2,636 3.13 ‐40.6% 42.77 1.85 2014 9.83 0.69 6.02 7.4%
2015E 4,983 3,005 3.56 14.0% 44.48 1.90 2015E 8.63 0.69 6.17 8.2%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
2016E 4,650 3,470 4.12 15.5% 46.71 2.06 2016E 7.47 0.66 6.69 9.0%
2017E 4,616 4,311 5.11 24.2% 49.76 2.56 2017E 6.01 0.62 8.32 10.6%
Auto hire purchase business sees improvement, especially on the asset quality side KKP updated the group’s latest operating environment and the potential outlook. Specficially, the main bright spot will be the auto hire purchase business, which should have already bottomed out and see gradual improvement, especially in terms of the asset quality side and much lower losses on repossessed cars. NPLs are likely to be manageable and we should see a gradual decline in NPLs for auto hire purchase loans. Meanwhile, the losses on repossessed cars should have already peaked in 2H14 and see a declining trend going forward, which should be a main driver to its earnings. However, on the lending side, it should still see a loan drop for auto hire purchase loans at least until 1H16E due to weak auto loan demand and the higher repayment rate vs. new lending. For the commercial lending side, especially on residential project and SME lending, it may still see some risk of asset quality deterioration given the likelihood of a prolonged weak economy. However, the bank was prudent with regard to qualitative NPLs in 2014 and in 1Q15 and already set a massive extra provision in 4Q14 and 1Q15. However, we still expect its provison to remain high in 2H15 for conservativeness. Meanwhile, corporate lending should see continuing improvement with new loan approvals of Bt8bn during 3Q15 and the drawdown of new lending of ~Bt3bn+ in 3Q15. The capital market units may see weaker momentum in 2H15 vs. 1H15 due to the unfavourable capital market in 2H15. Meanwhile, we expect the performance of the capital maket units to improve in 2016E, especially the hedge fund unit, which has seen better improvement. Trim net profit estimates for 15‐16E by 16‐18% We cut the net profit (NP) forecasts for KKP by 16‐18% for 2015‐16E, primarily to fine‐tune with the latest results, the bank’s latest business guidance as well as the tough operating environment due to higher economic risk. Our main revisions are 1) a higher provision as the bank set an extra provision in 1Q15; and 2) lower income related to capital makets, especially in terms of lower gain on investment and fee income. However, the main earnings cushion could come from a higher‐than‐expected loan spread and a much lower loss on repossessed cars, see Figure 1. Following our NP revision, we cut our 15E target price estimate for KKP to Bt34.00/share for an implied target P/BV of 0.8x from Bt41.00/share previously. Figure 1: Key changes in our earnings revision 2015E Net profit (Btmn) Net profit change from previous forecasts (%) Net profit change YoY (%) Loan growth (%) Provision for loan loss (Btmn) Provision for loan loss (bps of loans) Gain (loss) on investments Net Fees and service income Gain (loss) on FX and derivative transactions Gain (loss) from sale of repossessed cars Fee income growth (%) Loan spread Source: KT ZMICO Research
Previous 3,561
‐1% 2,013 1.10% 167 3,528 570 ‐1,700 2% 4.07
2016E New 3,005 ‐16% 14% ‐5% 2,704 1.55% 105 3,399 482 ‐1,130 ‐2% 4.15
Previous 4,250
5% 1,928 1.00% 203 3,646 615 ‐1,200 3% 4.01
New 3,470 ‐18% 15% 1% 2,213 1.25% 136 3,466 489 ‐900 2% 4.13
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
Figure 2: KKP's P/BV band and sensitivity of market prices based on P/BV at different standard deviation levels (X) 1.8
2015E
PBV (x) Implied market
+3 S.D.
1.6
+2 S.D.
1.4
+1 S.D. +0.5 S.D.
1.2 1.0 0.8
Avg. -0.5 S.D.
-1 S.D.
0.6
Jul-15
Jan-15
Mar-14
Aug-14
Apr-13
Sep-13
Nov-12
Dec-11
May-12
Jan-11
Jun-11
Feb-10
Aug-10
Oct-08
Mar-09
Nov-07
May-08
Jun-07
Jan-07
0.2
Sep-09
-2S.D.
0.4
Source: Bloomberg, KT ZMICO Research
Upside/ Downside
price (Bt)
to current price (%)
+2.0SD
1.4
61
97
+1.5SD
1.2
55
80
+1.0SD
1.1
50
63
+0.5SD
1.0
45
46
Average
0.9
39
28
-0.5SD
0.8
34
11
-1.0SD
0.7
29
-6
-1.5SD
0.5
24
-23
-2.0SD
0.4
18
-40
Figure 3: KKP's PER band and sensitivity of market prices based on PER at different standard deviation levels 2015E
(X) 18
PER (x)
16 14 12
6
Upside/ Downside
price (Bt)
to current price (%)
+2 S.D.
+2.0SD
14.1
50
64
+1 S.D.
+1.5SD
12.7
45
47
+1.0SD
11.2
40
30
+0.5SD
9.8
35
13
10 8
Implied market
Avg. -1 S.D.
Average
8.3
30
-4
2
-0.5SD
6.8
24
-21
0
-1.0SD
5.4
19
-38
-1.5SD
3.9
14
-55
-2.0SD
2.4
9
-72
Source: Bloomberg, KT ZMICO Research
Jul-15
Jan-15
Mar-14
Aug-14
Sep-13
Apr-13
Nov-12
Dec-11
May-12
Jan-11
Jun-11
Aug-10
Feb-10
Sep-09
Oct-08
Mar-09
Nov-07
May-08
Jan-07
-2 S.D.
Jun-07
4
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 6
Statement of Comprehensive Income (Btmn) Year‐end 31 Dec Interest on Loans and Deposits
2013 4,641
2014 4,976
2015E 4,502
2016E 4,780
2017E 5,596
Hire Purchase Income
9,834
9,744
8,818
8,325
8,476
777
617
614
715
821
Interest & Dividend on Securities Investment in FRA Unit trusts
557
606
511
402
322
15,809
15,942
14,445
14,222
15,214
7,462
7,016
5,839
5,972
6,746
Net Interest Income
23,270
22,958
20,284
20,194
21,960
Non‐Interest Income
6,163
3,813
4,444
4,865
5,371
29,433
26,772
24,728
25,060
27,331
Operating Expenses
6,879
6,534
6,626
6,606
6,818
Operating Profit
6,031
6,122
5,697
5,476
5,636
Provision (Reversal) for loan loss
Total Interest Income Interest Expenses on Borrowing
Operating Income
2,240
3,199
2,704
2,213
1,690
Taxes
951
353
669
773
960
Minority Interest
‐22
‐17
‐45
‐53
‐61
Net Profit
4,418
2,636
3,005
3,470
4,311
PPOP
5,058
5,752
4,983
4,650
4,616
5.27
3.13
3.56
4.12
5.11
Cash & Money Market Items
2013 10,959
2014 8,299
2015E 7,769
2016E 6,843
2017E 6,093
Net Investment
30,913
32,629
36,795
38,615
40,709
EPS (Bt)
Statement of Financial Position (Btmn) Year‐end 31 Dec
56,785
60,525
63,099
67,908
75,369
Hire Purchase Loans ‐ Gross
Finance & Securities Loans ‐ Gross
134,019
124,252
111,827
109,590
112,878
Net Loans
184,778
177,480
165,586
166,754
176,715
Total Assets
249,109
240,407
244,310
248,730
262,167
Deposits
145,996
132,315
129,404
129,469
137,172
Total Borrowings
195,222
184,881
186,219
187,559
197,115
Total Liabilities
21,998
19,431
33,389
35,594
37,540
Paid‐up Capital
8,388
8,428
8,428
8,428
8,428
Retained Earning
15,919
16,757
17,861
19,274
21,229
Total Equity
34,944
36,048
37,493
39,365
41,941
Source: KTZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 6
Valuations and Ratio Analysis Year‐end 31 Dec
2013
2014
2015E
2016E
2017E
5.27
3.13
3.56
4.12
5.11
Per/Share Data (Bt) EPS DPS
2.65
1.85
1.90
2.06
2.56
BVPS
41.66
42.77
44.48
46.71
49.76
PE (X)
5.84
9.83
8.63
7.47
6.01
P/BV (X)
0.69
0.69
0.69
0.66
0.62
Dividend yield (%)
8.62
6.02
6.17
6.69
8.32
Net Profit
30.3
‐40.3
14.0
15.5
24.2
EPS
29.3
‐40.6
14.0
15.5
24.2
Net Interest Income
17.4
6.9
‐3.6
‐4.1
2.6
Multiplier
Percentage Growth (%)
Non Interest Income
42.7
‐38.1
16.5
9.5
10.4
Operating Expense
17.7
‐5.0
1.4
‐0.3
3.2
Operating Profit
68.8
1.5
‐6.9
‐3.9
2.9
Loans
12.9
‐3.2
‐5.3
1.5
6.1
Deposits
‐4.6
‐9.4
‐2.2
0.0
6.0
NPLs
29.4
42.1
25.0
7.0
‐15.0
NPLs (Btmn)
7,283
10,352
12,940
13,846
11,769
NPLs/Loans
3.8
5.6
7.4
7.8
6.3
99.9
81.5
80.0
85.0
107.2
Equity/Asset
14.0
15.0
15.3
15.8
16.0
Tier I to Risk Assets
13.1
14.8
14.5
14.6
14.8
Asset Quality Ratio (%)
Loan Loss Reserve/NPLs Capital & Liquidity Ratio (%)
Total Capital Adequacy Ratio
13.7
15.2
15.2
15.4
15.7
Loan to Deposit & Borrowing
131.2
144.7
139.8
140.9
140.2
Profitability Ratio (%) ROA
1.8
1.1
1.2
1.4
1.7
ROE
13.0
7.4
8.2
9.0
10.6
Cost to Income
47.4
51.3
50.8
50.4
49.3
Net Interest margin
3.71
3.92
3.89
3.75
3.72
Loan spread
3.90
3.98
4.15
4.13
4.08
Key Assumptions
2013
2014
2015E
2016E
2017E
Loan Growth ‐ Net
12.9
‐3.2
‐5.3
1.5
6.1
Cost to Income
47.4
51.3
50.8
50.4
49.3
Net Interest margin Provision (Btmn) Provision (% of loans)
3.7
3.9
3.9
3.8
3.7
2,240
3,199
2,704
2,213
1,690
1.18
1.74
1.55
1.25
0.90
Source: KTZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 6
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market return over six months period because of specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to below market return over six months period because of specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 6
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th
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KT•ZMICO Securities Company Limited
st
8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000
Phaholyothin Branch
rd
Fax. (66-2) 631-1709
Ploenchit Branch
th
nd
2
Sindhorn Branch
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8 Floor, Ton Son Tower,
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Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,
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Telephone: (66-2) 686-1500
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G Floor, Lao Peng Nguan 1 Bldg.,
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Telephone: (66-2) 618-8500
Telephone: 083-490-2873
Fax. (66-2) 618-8569
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Chonburi Branch
Pattaya Branch
108/34-36 Mahajakkrapad Road,
4 Floor, Forum Plaza Bldg.,
382/6-8 Moo 9, T. NongPrue,
T.Namuang, A.Muang,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Banglamung, Cholburi 20260
Chachoengsao 24000
A. Muang, Cholburi 20000
Telephone: (038) 362-420-9
Telephone: (038) 813-088
Telephone: (038) 287-635
Fax. (038) 362-430
Fax. (038) 813-099
Fax. (038) 287-637
Khon Kaen Branch
5th Floor, Charoen Thani Princess Hotel,
Hat Yai Branch
Sriworajak Building Branch
200/301 Juldis Hatyai Plaza Floor 3,
1st – 2nd Floor, Sriworajak Building, 222
260 Srichan Road, T. Naimuang,
Niphat-Uthit 3 Rd,
Luang Road, Pomprab,
A. Muang, Khon Kaen 40000
Hatyai Songkhla 90110
Bankgok 10100
Telephone: (043) 389-171-193
Telephone: (074) 355-530-3
Telephone: (02) 689-3100
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Fax. (02) 689-3199
Central World Branch
Chiang Mai Branch
Phuket Branch
999/9 The Offices at Central World,
422/49 Changklan Road, Changklan
22/61-63, Luang Por Wat Chalong Road,
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Subdistrict, Amphoe Meuang,
Talat Yai, Mueang Phuket,
Bangkok 10330
Chiang Mai 50100
Phuket 83000
Telephone: (66-2) 673-5000,
Telephone: (053) 270-072
Tel. (076) 222-811,(076) 222-683
(66-2) 264-5888 Fax. (66-2) 264-5899
Fax: (053) 272-618
Fax. (076) 222-861
Pak Chong Branch
Cyber Branch @ North Nana
173 175, Mittapap Road,
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871
Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574
Nakhon Ratchasima Branch
Bangkhae Branch
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624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.
