Kina Securities

About the author:

Author name:

By Richard Coles

Job title:

Senior Analyst

Date posted:

14 October 2016, 9:39 AM

Sectors Covered:

Insurance, Diversified Financials

Key points

• Kina Securities (KSL) has won the mandate to provide fund administration services for NASFUND, PNG's largest superannuation fund by membership size.
• Kina now has a dominant position in the PNG super fund administration market, with the deal increasing Kina's annuity style revenue.
• We estimate the NASFUND contract could add ~PGK5m per annum to Kina's NPAT from FY18 onwards (~10% accretion).

What happened?

Kina announced it has won the mandate to provide fund administration services to National Superannuation Fund (NASFUND). NASFUND is PNG's largest superannuation fund by membership size with 543,000 members and PGK4.09bn in total assets (A$1.66bn). The contract increases the number of members Kina provides super fund administration services to by about 3x.

Becoming PNG's leading super fund administrator

This contract win is clearly a positive for Kina. The contract is for five years and makes Kina the dominant super fund administrator in the PNG market. Kina how services the three largest superannuation funds (No.1 fund, Comrade Trustees and NASFUND). Positively too, fund administration provides a stable annuity style revenue stream, which is a nice offset to Kina's banking activities which are more economically linked. Kina believes the PNG super fund administration industry will broadly grow around 5% per annum in future (on a member number basis). Longer term Kina hopes the large customer base provided by the contract will also create banking opportunities for the group.

Deal should be accretive although benefits largely flow from FY18

Kina has indicated the NASFUND contract will largely transition to Kina from the end of 1H17, meaning the bulk of the benefits will flow from FY18 onwards. We also understand there is an upfront investment in platforms etc required to manage this significant contract. While Kina has disclosed minimal contract details, we have attempted to estimate the earnings benefit from the contract when it fully ramps up in FY18. Broadly we estimate the NASFUND contract could add ~PGK5m per annum to Kina's NPAT from FY18, making it ~10% accretive on our estimates.

Investment view

The stock has delivered on all targets since listing and we continue to believe Kina is undervalued for its longer-term growth profile. Aside from today's contract announcement, the company recently produced a strong 1H16 result, with profits up ~350% on the pcp driven by 34% annualised loan growth. Kina continues to trade on only an ~8x FY16F PE multiple, while offering a ~9% dividend yield. Kina's 31% capital ratio also remains robust and is 3x the current Australian bank level. We lift our EPS forecasts by ~4% for FY17 and ~9% in FY18.

We maintain our Add recommendation and upgrade our share price target.

More information

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