Thanachart Capital

Thanachart Capital Plc (TCAP)
 

Profit in line with estimate: TCAP posted a 1Q12 profit of Bt1.2bn, up by 27% QoQ and 4% YoY. The result was in line with our model and the consensus. Pre-provision operating profit for the quarter totaled Bt2.8bn, down 28% YoY (but up 34% QoQ). 1Q12 earnings represent 21% of our FY12 forecast.
Results highlights: Lending rose by 1.7% QoQ and 6% YoY to Bt690bn at end-March—close to our model. Net interest margin (NIM) slipped 35 bps YoY to 2.51% in 1Q12, due to the modest scale of loan growth in tandem with a sharp rise in funding costs (the BOT’s 0.47% levy on deposits, B/Es and short tenor debentures). As such, net interest income (NII) declined 11% YoY (and was flat QoQ) to Bt5.6bn. TCAP cut its loan loss provisioning 42% YoY to Bt415m. The NPLs/loans ratio dipped to 5.7% at end-March from 5.9% at YE11, while the loan loss coverage ratio diminished to 66% at end-March from 68% at YE11.
Outlook & model adjustments: 2Q12 earnings will improve somewhat, as the firm plans to accelerate lending in order to mitigate the effect of higher funding costs as a result of the BOT’s new levy. We have already factored the levy into our model. Our FY12 and FY13 NIM assumptions stand unchanged at 2.5% and 2.54%, respectively.
Recommendation: Given an improving earnings profile and a well-managed NIM, we believe TCAP has scope for earnings upside in 2H12. Besides, the stock currently trades at a very cheap YE12 PBV of 1.0x, much lower than the sectoral mean of 1.5x and its last peak 2010 PBV of 1.15x. We have, thus, revised up our YE12 target price from Bt30 to Bt35.50, pegged to its last peak of 1.15x in 2010. TCAP’s cheap valuation and scope for earnings upside makes it worthy of a TRADING BUY rating.