Why Kina Securities (KSL) Is High On Our Buy List This Week

In today’s spot­light is an old favourite, Kina Secu­ri­ties, oth­er­wise known as KSL. This stock has re-emerged on the buy list recent­ly after going through a 3‑point turn across the buy line.

KSL is not new to the mar­ket, but it’s worth revis­it­ing. For those not famil­iar, Kina Secu­ri­ties is a local bank based in Papua New Guinea (PNG). Dis­tin­guished from being mere­ly a branch of an Aus­tralian bank, KSL is a sig­nif­i­cant play­er in the PNG bank­ing scene with 21 branch loca­tions, with its oper­a­tions expand­ing into the Pacif­ic.

Apart from offer­ing full bank­ing ser­vices, includ­ing invest­ments, wealth man­age­ment, and busi­ness bank­ing, KSL excels in fund admin­is­tra­tion. It man­ages the plat­forms that many of the major super funds in PNG use. Inter­est­ing­ly, KSL appears to have an edge in tech­nol­o­gy. They even pro­vide ser­vices that aren’t avail­able in Aus­tralia, such as bank­ing through a What­sApp group appli­ca­tion.

Lever­ag­ing their tech­nol­o­gy, KSL is reach­ing out to more remote PNG areas, and also extend­ing its foot­print into the Pacif­ic. KSL’s focus on elec­tron­ic bank­ing seems to be pay­ing off, as evi­denced by their sol­id growth.

Based on the last results in Feb­ru­ary (with a new report due soon), KSL saw a sub­stan­tial increase in new cus­tomers, hous­ing loans, SME growth, and prof­it. Despite the impres­sive fig­ures, you may ask why KSL is con­sid­ered a val­ue stock. We’ll delve into the num­bers to under­stand bet­ter.

With an aver­age dai­ly turnover of around 150,000, KSL may suit some investors but could be too small for oth­ers. At the time of analy­sis, the share price was 80 cents, which is less than the con­sen­sus tar­get. Fur­ther­more, the stock has a yield of over 11%, sig­nif­i­cant­ly high­er than Aus­tralian bank stocks.

The finan­cial health of KSL is strong and recov­er­ing, prob­a­bly due to the impact of COVID-19 on PNG’s resource econ­o­my. The recov­ery is good news as it often indi­cates that the com­pa­ny is focus­ing on what mat­ters — improv­ing cash flow, reduc­ing debt, and keep­ing costs under con­trol.

The price to earn­ings (PE) ratio for KSL is a mere 3.7 times, the low­est in the last three years. The Prop­Caf price to oper­at­ing cash flow is only 1.5 times, quite low. The share price is below IV1 and IV2, a rare occur­rence. These fig­ures indi­cate that KSL is scor­ing well on price and val­ue met­rics.

How­ev­er, there are risks asso­ci­at­ed with invest­ing in KSL. The fore­cast EPS growth is neg­a­tive, at ‑23%. It seems this fore­cast is relat­ed to the PNG gov­ern­men­t’s intro­duc­tion of a super prof­its tax for the bank­ing sec­tor, increas­ing the cor­po­rate tax for banks from 30% to 35%.

Despite the tax hike, there seems to be some opti­mism. The share price has recent­ly increased, sug­gest­ing that the banks might be nego­ti­at­ing with the gov­ern­ment over this issue. Even if the tax sit­u­a­tion does­n’t change, KSL remains a robust and grow­ing com­pa­ny with plen­ty of cash flow.

To wrap up, it’s essen­tial to be aware of the risk relat­ed to the super prof­its tax, but KSL remains near the top of our buy list, a tes­ta­ment to its sol­id growth and attrac­tive val­u­a­tion. It’s worth keep­ing an eye on this one, as well as their lat­est results.

Remem­ber, when invest­ing, it’s cru­cial to main­tain vig­i­lance and be aware of the risks asso­ci­at­ed with your invest­ment choic­es. Even with the poten­tial tax hur­dle, KSL presents an inter­est­ing oppor­tu­ni­ty for investors look­ing to add a unique stock to their port­fo­lios.

Dis­claimer: This pod­cast is an infor­ma­tion provider and in giv­ing you prod­uct infor­ma­tion we are not mak­ing any sug­ges­tion or rec­om­men­da­tion about a par­tic­u­lar prod­uct. The infor­ma­tion has been pre­pared with­out tak­ing into account your indi­vid­ual invest­ment objec­tives, finan­cial cir­cum­stances or needs. Before you decide whether or not to acquire a par­tic­u­lar finan­cial prod­uct you should assess whether it is appro­pri­ate for you in the light of your own per­son­al cir­cum­stances, hav­ing regard to your own objec­tives, finan­cial sit­u­a­tion and needs. You may wish to obtain finan­cial advice from a suit­ably qual­i­fied advis­er before mak­ing any deci­sion to acquire a finan­cial prod­uct. Please note that all infor­ma­tion about per­for­mance returns is his­tor­i­cal. Past per­for­mance should not be relied upon as an indi­ca­tor of future per­for­mance; unit prices and the val­ue of your invest­ment may fall as well as rise. The results are gen­er­al advice only and not per­son­al prod­uct advice.

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