Thanachart Capital

Thanachart Capital Plc (TCAP) 

After stellar share price runs of its large peers, it could now be TCAP’s turn to take the lead. A number of the operating signposts are shining brighter, signalling that the bank’s ROE could have bottomed out. Along with its valuation, TCAP should be labelled a bargain. Net profit for 2Q12 was 40-44% above our and market’s expectations. We boost our FY12-14F EPS and target price, which is now set to 1.3x FY12F P/BV (prev. 1.1x), derived from GGM assuming 13% ROE (prev. 12%), 11.7% COE and 6.5% growth. Maintain Outperform. 

Beyond all expectations
TCAP’s 2Q12 net profit rose 43% qoq and 8% yoy to THB1.7bn. The wide positive gap to our estimate was explained by the better-than-expected NIM, cost controls and credit charge. Loan
growth of 5.7% YTD was driven by a booming car hire-purchase lending. NIM surged 20bp qoq on higher asset yield and lower funding cost, despite a hike in funding tax charges.
Opex declined qoq. Credit cost stabilised at an economical level while NPLs continued to decrease
Earnings upgrade
We revise our FY12F EPS up by 12% as we factor in higher loan growth (from 10% to 12%), higher NIM (from 2.6% to 2.7%) and lower cost ratio (from 62% to 59%). We expect TCAP’s loan growth to accelerate into 2H12 on record auto HP lending. The proportion of bills of exchange
to total funding has dropped to 14% (from 33% at end-2011), hence taming any remaining impact from the more costly funding tax. Management is also fully committed to cutting costs further.
Time to move in TCAP remains cheap compared to its more expensively-priced peers. The
stock is trading at 6x P/E, 0.9x P/BV (the only bank still priced below book) with a 4.5% dividend yield, leaving limited room for much downside. A positive catalyst is a turnaround in ROE, which looks more imminent than ever. With a relatively lower capital ratio and loan loss reserve cushion, TCAP is far from being the perfect bank. However, better profitability could lift it off this bargain platform.