Thanachart Capital

Thanachart Capital Plc (TCAP)

Investment thesis
We are optimistic about TCAP’s earnings prospects, given the V-shaped recovery in new car sales (and anticipation of further loan growth in 4Q12 onward), the Bt6bn investment gain from the divestment of Thanachart Life Assurance (TLIFE) in 1Q13 and the Bt3.4bn share buyback program. All such good news should push up the bank holding company’s share price in line with its performance. TCAP currently has the cheapest YE13 PBV in the sector of 0.9x; the Thai Bank average is 1.4x and the regional mean is 1.7x. Our BUY rating stands.   
Share buyback to boost TCAP share price
Since the announcement of the divestment of TLIFE to Prudential Life Assurance on November 2, 2012, TCAP’s share price has dropped 15% from Bt37.75, perhaps because the market anticipates lower recurring income as a result of the sale. The share buy-back period will start on Dec 11, 2012 and end on June 10, 2013. TCAP has set a budget of Bt3.4bn for the scheme with a repurchase ceiling of 127.7m shares.

No impact on TCAP’s performance
The program won’t have any effect on EPS performance because there won’t be a capital reduction. The buy-back is simply an effort by management to support the share price in anticipation that Bank sector sock prices will rise across-the-board next year (at which stage, treasury stock will probably be sold back into the market).
The implementation of Basel III next year will require banks to maintain higher capital adequacy ratios than Basel II. Note that TCAP’s CAR at end-Sept 2012 was 14.65%, of which 9.1% was Tier-1. Basel III will require Tier-1 capital of 6%, up from the Basel II minimum of 4.25%. TCAP’s CAR might appear at first glance to be substantially more than necessary, but we assume loan growth of 12% in FY13 (following 15% this year). Furthermore, its Tier-1 capital is significantly lower than the sector mean of 10.5%.