Thanachart Capital

Thanachart Capital Plc (TCAP)

TLife and SCIBLife total more than B17.1bn worth

We have studied about the sale of investment in the life insurance of TCAP. TBANK has revealed at the recent analyst meeting that the sale would occur if it could generate good profit for TCAP and it is worth more than TCAP operating the business itself under the subsidiaries, TLife and SCIBLife, which are entirely held by TBANK (since TBANK is held by TCAP and Scotia Hldg by
51% and 49% respectively, indirect shareholding of TCAP in TLife and SCIBLife is only 51%). The most frequently asked question from investors is whether it is possible for TCAP to recognize sale value and profit from the deal at above B10bn. According to our estimation of value of TLife and
SCIBLife, the sale value and profit could be as large as B17.1bn. 1) Value of TLife is estimated at around B14.9bn, using appraisal value which comprises embedded value of B11.9bn (book value at end-2012 is B4.73bn while value in force is B7.17bn), under an assumption for discounted cash flow for current premium value at 5 years on average as most of them are car credit life and the rest are home credit life, and value of new business (VNB), using multiplier of only 1x of NCF in 2013, at B3.03bn. 2) Value of SCIBLife is estimated at B2.23bn, using appraisal value which comprises embedded value of B2.17bn (book value at end-2012 is B1.35bn and value in force is
B810m), under an assumption for discounted cash flow for current premium value at 10 years on average as most of them are endowment and home credit life, and VNB, using multiplier of only 1x of NCF in 2013, at B65m. After TCAP sells the investment in the 2 life insurance businesses at the same time, it will book profit from the sale at B15.4bn in total (after deducted with the cost of investment at B1.70bn). However, after deducted with tax and non-controlling interests (49%), total net profit is B6.31bn or B4.94/share.

Revenue from new business will compensate lost profit and strengthen core T1 and BV

Although the sale of the life insurance businesses will make TCAP lose profit by B800m each year (net after MI and tax), we believe the B6-7m from the business sale would be included in the core tier 1 and make core tier 1 at end-1H12 increase to 8.2% (after deducted with goodwill of B13.9bn and combined with net profit in 1H12). Accordingly, this helps substantially alleviate worry about TCAP’s capital increase. We believe TCAP’s net loan growth in 2013 will increase to 15%yoy (it is not difficult for the net loan growth to reach the level because in 1H12 net loan has grown as large as 5.7% from end-2011, so the growth would not be lower than 12-13% if excluding the continued debt restructuring to reduce NPL in 2H12) and NIM is projected to increase to 2.86% following new loans (from the previously projected 2.52%). If the life insurance business sale occurs in 2013, net
profit base of TCAP in 2013 will rise to B12.8bn, double from the previous forecast, while BVS in 2013 will shift to B40.05/share.

2013’s FV will increase to B48.51. Select as a top pick of mid-cap banks

We confirm our Buy recommendation and select TCAP as a top pick of the mid-cap banks. 2012’s fair value at 1.21x PBV is B40, while 2013’s fair value is B44.07. However, including profit from the business sale, fair value in 2013 will increase to B48.51, up 10% from the previous forecast.