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Results beat expectations on lower-than-expected ECL. KKP’s 4Q24 net profit came in at THB1.4bn (+110% y/y, +7.7% q/q), beating the Bloomberg consensus of THB1.0bn and our estimates of THB1.1bn. The lower-than-estimated expected credit cost (ECL) was the key reason behind the positive surprise. However, non-interest income (non-NII) was also higher than expected but offset by higher-than-expected operating expenses (OPEX).
The y/y increase was attributed to lower ECL and higher non-NII from (i) higher fee income, (ii) lower loss from sales of repossessed cars, and (iii) gain on financial instrument designated at fair value through profit or loss (FVTPL) in 4Q24 (vs. loss in 4Q23).
Meanwhile, the q/q increase was thanks mainly to higher non-NII from (i) higher fee income, (ii) lower loss from sales of repossessed cars, and (iii) higher gain on financial instrument designated FVTPL.
FY24 earnings were THB5.0bn (-8.4% y/y), dragged by lower net interest income (NII), lower fee income, and higher OPEX.
Pre-provision operating profit (PPOP) came in at THB2.7bn (+13.6% y/y; +18.2% q/q) in 4Q24. The y/y and q/q increases were thanks mainly to higher non-NII. FY24 PPOP was THB10.2bn (-20.7% y/y), pressured by lower NII, lower fee income, and higher OPEX.
Loans contracted 1.3% q/q and 7.8% y/y. Retail loans (69% of total loans) declined 6.6% y/y, due mainly to the decrease in hire purchase (HP) loans (45% of total loans; -11.0% y/y), while other retail loans increased – i.e., housing loans (16% of total loans; +2.8% y/y), personal loans (4% of total loans; +0.1% y/y), and micro-SME loans (4% of total loans; +8.2% y/y). Corporate loans (14% of total loans) decreased 10.3% y/y, while commercial (SME) loans (15% of total loans) declined 5.0% y/y.
Loss from sale of repossessed cars decreased but remained high. KKP recorded losses from sale of repossessed cars (LOS) of THB1.1bn in 4Q24 (vs. THB1.2bn in 3Q24). The decline was attributed to the reduction in the number of repossessed cars sold, while an average loss per unit (i.e., loss given default [LGD]) started to stabilise.
LOS slightly decreased 0.8% y/y to THB4.8bn in FY24 from the reduction in the number of repossessed cars sold in FY24, while the average loss per unit was higher than in FY23.
Meanwhile, car inventory declined c.30% y/y in FY24, easing the company’s pressure to accelerate the sales of repossessed cars, which should stabilise or even improve loss per unit in the future.
Note that most repossessed cars are derived from used-car HP granted in 2022-1H23, when used-car prices were abnormally high due to the supply shortage of new cars. Management believes it may take 12-18 months to flatten the NPL curve for its 2022-1H23 HP portfolio.
This implies that, in 2025, we should see fewer NPL inflows from the 2022-1H23 vintage and thus fewer number of cars repossessed. Nonetheless, used-car prices remain a wild card.
Note that, of KKP’s HP portfolio, approx. 50% were loans that originated in 2022-2023; meanwhile, c.20% were high quality loans granted in 2024, and the remaining c.30% were those that were lent before 2022.
Fee income increased y/y and q/q, despite sluggish capital market conditions. For 4Q24, fee income increased 21.5% y/y and 9.2% q/q. The y/y increase was thanks to higher income from the brokerage business, wealth management, asset management, and investment banking (IB) business. Meanwhile, the q/q increase was attributed to higher income from wealth management and IB business.
While fee income declined 1.5% y/y in FY24, income from capital market businesses increased, particularly in wealth management and asset management business (driven by the growth in assets under advise [AUA] and assets under management [AUM]). Nonetheless, this was offset by a decline in bancassurance fees following the slowdown in loans.
Management revealed that the pipeline for corporate fund raising through the capital market remains solid. Nonetheless, the timing of transactions is uncertain.
NPL ratio ticked up; coverage ratio decreased. NPL ratio ticked up to 4.2% at end-4Q24, vs. 4.1% at end-3Q24 and 3.2% at end-4Q23. The increase was due partly to loan portfolio contraction, while NPL amount remained relatively stable (+0.3% q/q) at THB15.5bn at end-4Q24.
KKP set aside an ECL of THB914mn (-36.0%y/y; +34.1% q/q) in 4Q24. The y/y decline was thanks to the ECL overlay set up for one specific account in 4Q23 (but not in 4Q24), while the q/q increase was due to the bank’s ongoing asset quality management measures.
For FY24, ECL declined 37.4% y/y to THB4.0bn, thanks to the bank’s effort in asset quality management and the slowdown in loan volume.
Coverage ratio decreased to 134% at end-4Q24, vs. 136% at end-3Q24 and 165% at end-4Q23.
Capital position remains strong. CAR stood at 16.59%, with Tier 1 ratio at 13.07%, compared with the BOT’s minimum requirements of 11.00% and 8.50%, respectively.
2025 financial targets. With unfavourable market conditions and outlook for auto loan expansion, management believes negative loan growth may continue in 2025. KKP targets flat loan growth for FY25F, reflecting its selective growth strategy with a focus on quality loans.
With that, management believes there are no pressures for the bank to roll over its funding due to mature in 1Q25, and as such, it is likely that cost of funds will decline. Meanwhile, KKP has continued to raise its retail CASA proportion to reduce overall deposit costs.
Given that, it expects loan spread to remain stable at 4.8% or improve to 4.9% in FY25F.
In terms of asset quality, KKP has guided for NPL ratio to remain in a 4.1-4.3% range at end-FY25F (vs. 4.2% at end-FY24), given current macroeconomic uncertainties.
Meanwhile, it has guided for a credit cost (including losses from sales of repossessed cars) at 220-240bps in FY25F (vs. 230bps in FY24), given its improving portfolio quality and stabilised used-car prices.
KKP’s 2025 targets vs. DBSVTH’s assumptions
| KKP's targets | DBSVTH |
Loan growth | flat | -1.0% |
NIM | 4.8-4.9% (Loan spread) | 4.4%* |
Credit cost (bps) | 220-240bps (incl. losses from sales of repossessed cars) | 110bps** |
NPL ratio (gross) | 4.1-4.3% | 4.1% |
Source of all data: Company, DBSVTH
Note: *DBSVTH’s NIM calculation is including repo
**Not including losses from sales of repossessed cars
FY25F/FY26F earnings raised by 16%/17%. As we incorporated KKP’s FY24 results and revised our key assumptions for FY25F/FY26F to reflect a better-than-expected asset quality outlook, we raised FY25F/FY26F earnings by 16%/17%.
Specifically, we revised (i) our FY25F/FY26F loan growth assumptions to -1.0%/2.0% (vs. -4.0%/2.0% previously), (ii) credit cost to 110bps/100bps (vs. 130bps/120bps previously), (iii) NIM to 4.39%/4.47% (vs. 4.27%/4.29% previously), (iv) C/I ratio to 54.9%/51.5% (vs. 55.0%/51.6% previously), and (v) LOS to THB3.6bn/THB2.8bn (vs. THB3.8bn/THB3.4bn previously).
With that, we now estimate KKP’s earnings growth at 3.9% y/y in FY25F and 27.2% in FY26F.
Maintain HOLD with a higher TP of THB59.00. Following our FY25F/FY26F earnings revisions, we derive a higher TP of THB59.00 (vs. THB57.00 previously) for KKP. Our TP is based on 0.75x FY25F P/BV, i.e., 1SD below its 5-year average P/BV. While we believe KKP’s asset quality issues have reached their lowest point, recovery should take time. With that, our HOLD rating stands.
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