Deferred Tax Adjustment Cuts Kina Securities’ Statutory Profit but Leaves Operations Unscathed
Kina Securities confirms its 2024 underlying profit guidance amid a non-cash statutory profit reduction driven by deferred tax asset adjustments and a customer fraud impact.
- Underlying 2024 NPAT guidance confirmed at PGK 109.5m - PGK 111.2m
- Statutory profit reduced to PGK 100.0m - PGK 102.0m due to deferred tax asset write-down
- Customer fraud incident impacts profit by PGK 12.0m - PGK 15.0m after tax
- PNG tax rate reduction from 45% to 40% in 2025 and 35% in 2026 triggers deferred tax asset adjustment
- Non-cash charge has no operational impact on Kina Securities
Kina Securities Reaffirms Profit Outlook
Kina Securities Limited (ASX:KSL | PNGX:KSL) has confirmed its underlying profit guidance for the 2024 financial year, projecting a net profit after tax (NPAT) in the range of PGK 109.5 million to PGK 111.2 million. This affirmation comes despite a series of financial adjustments and challenges, including a significant customer fraud incident announced mid-year.
Impact of Customer Fraud Incident
The company disclosed that the fraud event, which surfaced in June 2024, will reduce the underlying profit by an estimated PGK 12.0 million to PGK 15.0 million after tax. While material, Kina Securities has absorbed this impact within its guidance, signalling resilience and effective risk management in its operations.
Deferred Tax Asset Adjustment and Statutory Profit
A notable development affecting the statutory profit is the reduction in Papua New Guinea's tax rate for smaller banks, from 45% in 2024 to 40% in 2025 and further down to 35% in 2026. This change has led Kina Securities to write down the carrying value of its deferred tax assets by PGK 9.4 million. This non-cash charge reduces the company’s statutory profit to an estimated PGK 100.0 million to PGK 102.0 million for 2024, pending audit finalisation.
Importantly, the company emphasises that this accounting adjustment does not affect its cash flow or ongoing operations, underscoring the distinction between statutory and underlying profit metrics.
Looking Ahead: Tax Environment and Operational Stability
The reduction in the tax rate reflects a broader fiscal policy shift aimed at supporting smaller financial institutions in PNG. For Kina Securities, this translates into a lower tax burden in coming years, potentially enhancing future profitability once the deferred tax asset adjustments are accounted for.
Meanwhile, the company’s ability to maintain profit guidance despite the fraud incident suggests robust internal controls and operational resilience. However, the full ramifications of the fraud on customer trust and regulatory scrutiny remain to be seen.
Investor Considerations
Investors should note the distinction between underlying and statutory profits in assessing Kina Securities’ financial health. The underlying profit reflects the company’s core earnings power, while statutory profit includes accounting adjustments that may obscure operational performance.
As Kina Securities approaches its audit finalisation, market participants will be watching closely for any revisions or additional disclosures related to the fraud incident and tax asset valuations.
Bottom Line?
Kina Securities navigates tax changes and fraud impact with steady profit guidance, but eyes remain on audit outcomes.
Questions in the middle?
- How will the customer fraud incident affect Kina Securities’ risk profile and customer confidence long term?
- Will the deferred tax asset write-down influence Kina Securities’ capital management or dividend policy?
- How might further tax policy changes in PNG impact Kina Securities’ profitability beyond 2026?
