Thanachart Capital

Thanachart Capital Plc (TCAP)
Investment thesis
The gain from the divestment of Thanachart Life Assurance (TLA) will boost TCAP’s balance sheet and might mean some scope for a higher dividend payout. The boost it will give to CAR should put cash call rumors to rest. In order to fine-tune for the gain on the sale, which will be booked in 1Q13, we have upgraded our FY13 profit forecast by 57% to Bt11bn. The higher FY13 bottom-line projection prompted us to increase our YE13 target price 19% to Bt57, pegged to a justified YE12 PBV of 1.42x. Our BUY rating stands.
What’s new?
Thanachart Bank Plc, which is 51% owned by TCAP, announced the sale of Thanachart Life Assurance to Prudential Life Assurance (Thailand) Plc for Bt18bn. TBANK expects the transaction to be completed in 1Q13—the Office of the Insurance Commission must first approve the sale. Note that Prudential Life Assurance has signed an exclusive 15-year contract under which TBANK will be the sole bancassurance vendor of all Prudential’s life assurance products. Scotiabank of Canada holds the other 49% of TBANK.
Gain of Bt4bn-Bt5bn in FY13; profit forecast upgrade
We estimate that TCAP will book an after-tax gain of Bt4-5bn on the sale of TLA in 1Q13. As such, our FY13 earnings forecast jumps from Bt6.7bn to Bt11bn. However, we maintain our FY14 TCAP projection at Bt7.7bn.  
Stronger capital base ahead of Basel III
The deal will boost TCAP’s CAR from 14.7% (9.1% Tier-1) to 15.7% (10.1% Tier-1). The bigger capital base means there is now no risk at all of TCAP needing to recapitalize during the next couple of years. Note that the Basel III accord—which will come into effect on Jan 1, 2013—mandates a minimum Tier-1 level of only 6% (the Tier-2 minimum will be 2.5%).