KSL Details

Terminated Acquisition Agreement with Westpac’s Pacific Businesses: Kina Securities Limited (ASX: KSL) is a diversified financial service company that offers end-to-end financial solutions from savings accounts to business loans, investments to mortgages, financial advice, and investment management. On 22 September 2021, the company notified that it has terminated the agreements for the purchase Westpac’s Pacific businesses, comprising Westpac Fiji and Westpac's 89.91% stake in Westpac Bank PNG Limited. Earlier, the Independent Consumer and Competition Commission (ICCC) had denied granting authorization to the Acquisition as there were concerns that the acquisition may lessen the competition in the PNG markets.

Key Highlights of FY21 Results:

• Rise in Net Interest Income: For H1FY21, the company reported a net interest income of PGK 85.4 million, up 6% on pcp, driven by the growth in the existing loan book, investment in high yielding government instruments, and lower interest expense.
• Managing Costs: As a result of prudent cost control measures, the company was able to reduce its cost to income ratio to 60.9% compared with 64.9% in the pcp.
• Rise in Statutory NPAT: The company’s unaudited statutory net profit after tax stood at PGK 39.8 million, up 36% on pcp, driven by an increase in transactional volumes, continued cost discipline, and growth in the existing loan book.

NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Credit Risks: Various of the company’s assets are subject to the impairment requirements to assess, whether there has been a significant increase in credit risk. Rise in credit risks could impact the asset quality.
• Foreign Currency Risk: The company is exposed to the risks associated with the fluctuations in the foreign currency rates, as it could impact its foreign exchange (FX) trading income.

Outlook: Looking ahead, KSL is seeking both organic and inorganic growth in PNG and the Pacific Region. The company is also focused on the ongoing expansion of its market leading eftpos fleet to meet significant demand. The company believes that its FY21 revenue will be in line with FY20. 

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by 14.49% and is trading lower than the average 52-week price level band of $0.715 - $1.2. The stock has been valued using the Price to Book value multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at slight discount to its peers, considering the termination of the agreements for the purchase Westpac’s Pacific businesses and uncertainty surrounding the COVID-19 pandemic. For this purpose of valuation, peers such as Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), have been considered. Considering the company’s improved financial performance in H1FY21, growing transactional volumes, modest outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $0.885, as on 15 October 2021, 10:30 AM, (GMT+10), Sydney, Eastern Australia).

KSL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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