Thitikorn

Thitikorn Plc (TK)

Investment thesis
We are bullish on TK’s long-term outlook, premised on: 1) business growth enabled by rising incomes in the provinces, 2) good asset quality management, which may allow lower LLPs than we assume and 3) a strong capital base. We also think the firm is likely to be an acquisition target of one of the big banks (probably a bank without a big existing HP operation). Additionally, TK could see earnings upside from better loan growth and lower loan loss provisions than we forecast. Its good dividend yield of 5.1% and strong earnings growth profile justifies a BUY rating. Our YE13 target price is Bt23.
Q1 2013 lending recovered QoQ
Nationwide 1Q13 motorcycle sales recovered 10% QoQ to 549K units with the expiry of the first-time car buyer tax rebate at YE12. As such, we expect lending growth for the quarter of 3% QoQ and 17% YoY for TK. Note that its business is now driven by ex-Bangkok demand. About 65% of its loan portfolio is in the provinces. Management expects this proportion to rise to 80% by YE14. The firm guides for modest FY13 loan growth of 10% (down from 14% last year). Our loan growth expectation is a much more bullish 15%.
Loan loss provisions should be stable QoQ
Given a low NPLs/loans ratio of 3.6% and a big loan loss coverage ratio of 140% at YE12, TK should post 1Q13 LLPs of Bt253m, flattish QoQ but down 5% YoY. The firm may cut its LLP-setting in 2H13, due to good asset quality management and a high loan loss coverage ratio.  However, we conservatively maintain our FY13 LLP forecast at Bt1bn, up 4% from last year.
NIM solid QoQ at 32%
Both ongoing loan growth and a very low D/E ratio would have made for a fat NIM of 31.8% for 1Q13, stable YoY and up 179 bps YoY (due to loan growth). Note that TK’s D/E ratio was very low at 1.5x at YE12, which means that about 60% of its funding is sourced from its own capital—it doesn’t have to make interest payments on that funding. We expect the firm to sustain its NIM at the current level through to the end of the year.
Expect 1Q13 earnings growth of 54% YoY
Lending expansion, a fat NIM and lower LLPs should make for a 1Q13 profit of Bt210m, up by 54% YoY and 4% QoQ. We also assume a cost/income ratio of 50.6%, down from 53.2% in 1Q12, due to greater scale. We anticipate that TK’s earnings will rise further throughout the year, led by loan growth, a fat NIM and improving operating efficiency.