Thanachart Capital

Thanachart Capital Plc (TCAP)

Investment thesis: We are positive about TCAP’s earnings outlook, given the V-shaped recovery in new car sales and anticipation of a fatter NIM in 2Q12 onward. Furthermore, its capital base remains sufficient to support expansion without need for a cash call. Premised on an improving business outlook, an inexpensive YE12 PBV of 1x and TCAP’s capital capacity to expand lending, we maintain our TRADING BUY rating with a YE12 target price of 35.50.
Better 2Q12 lending growth: Management maintains its FY12 lending expansion target range at 8-10%, driven by the HP and SME categories, following l5% loan growth last year. Finance for new cars will lead 2Q12 portfolio growth. Note that TCAP’s lending rose 1.7% YTD in 1Q12.     
NIM will inch up in 2Q12: TBANK plans to raise the proportion of current & saving accounts (the cheapest funding source) in its funding mix to 35% from 32% at end-March. It will reduce issuance of Bills of Exchange (B/E) and switch to long-term debentures and fixed deposits. Lending growth, a well-managed funding mix and the resumption of interest income from debtors that were affected by the 4Q11 flooding (whose interest payment obligations were suspended in 4Q11-1Q12) will boost 2Q12 NIM from the 2.5% reported for 1Q12.
Good asset quality management: TCAP says that the acceleration of troubled debt restructuring will bring down its NPLs/loans ratio to 4% at YE12 from 5.7% at end-March. This process could also help push up its loan loss coverage ratio to 80% at YE12 from 66% at end-March. It offered only loose LLP guidance for FY12—equal to between 0.2% (Bt1.5bn) and 0.5% (Bt3.5bn) of total loans (it set Bt2.1bn last year). 
No plan for a capital increase: TCAP aims to raise its capital adequacy ratio (CAR) from 12.7% (Tier-1: 8.7%) at end-March to 14% by issuing Tier-2 capital (subordinated debt) at some stage during the next three years. Given moderate lending growth, a reasonable dividend payment and improved profitability, we expect that its CAR should be adequate to support FY12 and FY13 lending growth without need for a Tier-1 cash call.
Outlook
Better 2Q12 lending growth: TCAP guides for FY12 lending expansion of 10% (we model for 7%). New car sales recovered spectacularly in 1Q12, so the bank holding company’s lending should expand strongly in 2Q12 onward. Note that at end-March 2012, HP loans comprised 47% of its total portfolio (up from 45% at YE11), followed by corporate & SME at 36% (down from 37% at YE11), home mortgages at 10% (down from 11% at YE11) and personal loans at 7% (down from 9% at YE11). Management anticipates that retail loans will comprise 70% of total lending within three years, up from 64% at end-March 2012. Nevertheless, we conservatively forecast that TCAP will deliver loan growth of 7.0% for FY12 and 6.5% for FY13, somewhat below management guidance.