Thanachart Capital

Thanachart Capital (TCAP)

Surprising profit in 2Q12. NIM strong, strategy of increasing CASA to replace B/E successful

2Q12’s profit beats expectation…auto loans boost NIM
TCAP reported 2Q12’s net profit at B1.70bn, growing 43.2%qoq and 8%yoy,
higher than our projection at only B1.31bn and hitting a quarterly high after
the merger with SCIB, thanks to following factors. 1) Net Interest income
has risen 9.9%qoq but still dropped 2.2%yoy – better than expected
due to benefits from very remarkable growth of car hire-purchase loan. In
1H12, car hire-purchase loans has grown significantly by 14.6% from end-
2011, already above our target for FY2012’s growth at only 10%yoy, while
loans for business sector and SME have also grown significantly.
Consequently, net loan in 2Q12 has shifted totaling by 4%qoq (overall, net
loan in 1H12 has grown 5.7% from end-2011, in line with our FY2012’s
targeted growth of 10%yoy. 2) NIM in 2Q12 has increased by 21bp to
2.78% - better than expected. Apart from a benefit from an increase of
yield following new loans, funding cost has also decreased by 10bp in this
quarter, reflecting a success in a strategy adjustment to focus on raising
deposits from current account and savings account (CASA) which has low
cost to replace B/E, using advantages from its 670 bank branches nationwide
which is also advantageous over TISCO and KK which have limited bank
branches. 3) Fee income has escalated 5.7%qoq and 21.3%yoy –
better than expected, mainly from loan related transactions, fund
expansions, and financial advisory business. 4) Debt provision has
increased lower than expected. Credit cost remained at 29bp close to
1Q12’s, lower than our projection for an increase to a policy level of 40-50bp.
Overall, net profit in 1H12 of TCAP has increased to B2.90bn, growing
6.5%yoy and comprising 51% of our FY2012’s profit forecast.

Positive sign for loans foreseen in 2H12, very likely to exceed forecast

We are confident that earnings performance in 2H12 of TCAP would increase
from 1H12, confirmed by a positive sign of car hire-purchase business which
has grown continuously (there has been pent-up demands from new car
supplies, especially eco-cars which could not be transferred in time).
Moreover, the second half of the year is a high season for loans, both SME
and other retail loans, so there is a high chance for net loan in FY2012 to
exceed our forecast. At every 1% increase of the net loan, net profit of TCAP
will increase by 1% from the previous forecast.

Laggard stock in car hire-purchase loan industry, time to outperform sector

We recommend BUY. The share price has an attractive upside of 30% from
2012’s fair value of B40/share at 1.21x PBV under long-term ROE forecast of
14.5%. Since the beginning of the year until now, the share price has
substantially underperformed the sector and the market, while its 2012’s PBV
is low at only 0.9x (higher than a 10-year average but still lower than 1SD
which is a level that is safe for investment), lower than the sector’s average
of 1.6x and the regional average of 1.5x.