Introduction

The financial landscape of Kiatnakin Phatra Bank (KKP) has been under scrutiny following its 4Q24 performance report. UOB Kay Hian’s detailed analysis sheds light on a mix of positives and concerns surrounding the bank’s recent operations and future projections. This article dives deep into the findings and insights presented in the report, providing an engaging narrative for financial enthusiasts.

Company Overview

Kiatnakin Phatra Bank (KKP) is a small-sized bank with a notable presence in Thailand’s financial sector, holding approximately 2% of the credit market. The bank has a strong focus on auto hire purchase lending, which constitutes about half of its loan book. This niche focus gives KKP a unique position but also exposes it to sector-specific risks, particularly in the automobile industry.

4Q24 Performance: A Mixed Bag

KKP’s 4Q24 net profit of Bt1.4 billion marked an impressive 110% year-on-year (yoy) growth and an 8% quarter-on-quarter (qoq) increase. These results exceeded both UOB Kay Hian’s and consensus expectations by 39% and 37%, respectively. However, the standout performance stemmed from a net gain on financial instruments measured at fair value through profit or loss (FVPL), while provision expenses spiked by 34% qoq.

Stock Recommendation

UOB Kay Hian maintained a “HOLD” recommendation for KKP, revising the target price downward from Bt56.00 to Bt52.00. This implies a modest upside of 1.0% from its current share price of Bt51.50. The valuation is based on the Gordon Growth Model, applying a cost of equity of 12.5% and a long-term growth rate of 2.0%. The revised target price reflects concerns over rising credit costs and uneven economic recovery.

Key Financial Highlights

• Net Interest Income: Bt19.8 billion in 2024, projected to drop to Bt18.6 billion in 2025.
• Non-Interest Income: Bt6.95 billion in 2024, but expected to decline to Bt5.76 billion in 2025.
• Net Profit: Bt4.99 billion in 2024, with a forecasted increase to Bt5.37 billion in 2025.
• EPS: Bt5.9 in 2024, expected to rise to Bt6.4 in 2025.
• Dividend Yield: Increased from 5.8% in 2023 to 6.5% in 2024, with a further rise to 7.3% in 2025.

Non-Interest Income and Share Repurchase Program

Non-interest income (non-II) surged by 55% yoy and 30% qoq in 4Q24, reaching Bt2.2 billion. This was largely attributed to a significant net gain on financial instruments measured at FVPL, which amounted to Bt484 million. Without this gain, the bottom line would have been Bt922 million, falling short of forecasts by 9%.

KKP has been actively repurchasing its shares since September 2024, acquiring 15.99 million shares (73% of the planned total) at prices ranging between Bt45.00 and Bt54.00. The program’s deadline has been extended to February 27, 2025, providing a safety net for the share price.

Concerns Over Credit Costs and Loan Growth

The bank reported a non-performing loan (NPL) ratio of 4.2% in 4Q24, up from 4.1% in the previous quarter. Provision expenses rose by 34% qoq to Bt914 million, leading to a qoq credit cost increase of 19 basis points to 218 basis points. These developments have raised concerns about the uneven recovery of the automobile industry, a key driver of KKP’s loan growth.

Management has guided for negative loan growth in 2025 due to structural changes in the car industry, which could further impact the bank’s performance.

Environmental, Social, and Governance (ESG) Initiatives

KKP is actively involved in ESG initiatives, scoring a “5” on the CG Report and a “BBB” on the SET ESG Rating. Key highlights include:

• Environmental: Promoting energy efficiency and supporting green businesses.
• Social: Fostering a diverse and inclusive work environment while promoting financial literacy.
• Governance: Upholding principles of good corporate governance and responsible lending practices.

Profit and Loss Analysis

A detailed analysis of KKP’s profit and loss statement for 2024 reveals:

• Total income of Bt26.8 billion.
• Pre-provision profit of Bt10.2 billion.
• Loan loss provisions amounting to Bt3.97 billion.
• Net profit of Bt4.99 billion for the year.

Operating Ratios and Asset Quality

KKP’s operating ratios and asset quality metrics for 2024 include:

• Capital Adequacy Ratio (CAR): 15.5%.
• NPL Ratio: 4.2%.
• Loan Loss Coverage: 134.2%.
• Loan/Deposit Ratio: 98.8%.

Future Projections

Looking ahead, KKP’s financial projections for 2025-2027 indicate a cautious recovery. Key forecasts include:

• Net profit growth of 7.7% in 2025, followed by 6.0% in 2026.
• NPL ratio expected to decline to 4.1% in 2025 and 4.0% in 2026.
• Dividend yield projected to increase to 7.3% in 2025 and 7.4% in 2026.

Conclusion

Kiatnakin Phatra Bank’s 4Q24 performance offers a complex narrative of strong earnings driven by one-off gains, juxtaposed against rising credit costs and industry-specific challenges. While the bank’s share repurchase program provides some stability, concerns over negative loan growth and an uneven economic recovery remain. Investors are advised to hold their positions, keeping a close watch on industry developments and the bank’s ability to navigate upcoming challenges.