Thanachart Capital

Thanachart Capital Plc (TCAP)

Q2 2013’s profit to be remarkable. Core business strong, fee income grows, provision increases
We estimate TCAP’s net profit in 2Q13 at B4.34bn, making a new quarterly high by
skyrocketing 122.5%qoq and 151%yoy due mainly to an extraordinary income, which is
B4.65bn of profit from TLife sale. The profit is calculated from the total money from the sale
at B17.4bn, which was received for the first time in early May 2013 (B940m will be booked in
June 2013 and the remaining B500m will be booked in the next year, totaling B18.9bn), net
after the investment cost of B4.5bn and the reserve according to auditor’s opinion of B1.5bm,
and deducted by NCI and tax. TCAP decided to bring B5bn from the profit to add to the
current debt provision projected at 85-90bp, mounting it to B6.74bn (net provision after NCI
and tax is B2.75bn). In addition, there is also a spread of profit and the increased provision
of more than B1.9bn to boost the net profit in this quarter. At The core business is still
strong. 1) Net interest income in 2Q13 is projected to grow as much as 2.7%qoq
and 9.2%yoy, in line with the net loan growth that is anticipated at 2.9%qoq and
17.9%yoy. Net loan in 1H13 is estimated to grow 5.1% from end-2012, which is still in line
with our projection for FY2013 at 12%yoy). The net loan growth would mainly benefit from
auto hire-purchase loans which have grown along with local auto sales as a result of the
government’s first car scheme. For small-SME loans, higher growth has been seen, even
higher than previously targeted. Corporate loans have also begun to grow compared with
1Q13. NIM in 2Q13 is projected to shift 5bp to 2.65% because of an increase in yield of auto
loans after the competition softened. Moreover, there are also benefits from the money from
TLife sale that TCAP invested to seek short-term returns and the decreasing funding cost
after the interest rate cut in late 2012. 2) Fee income in 2Q13 is projected to increase
8.6%qoq and 67.7%yoy, due to a support from fee income from loan transactions,
especially those relating to car hire-purchase (such as license plate renewal fee and tax) and
from non-loan transactions, particularly brokerage fee income from securities business of the
subsidiary from the total trading volume in the market at above B50bn a day. Furthermore,
fee income from Bancassurance transaction for Prudential Life has been very robust in its
first 2 months of operation. Despite some pressuring factors, there is nothing to worry. Cost
to income ratio is projected to increase to 51% (extraordinary income excluded) from
49.63% in 1Q13, mainly from marketing expense.
- Likely to cut forecast after earnings declaration to reflect higher provision
We revise down our earnings forecast for FY2013 but slightly revise up the forecast We are
likely to review our earnings forecast for 2013-2014 after 2Q13’s earnings declaration to
reflect the increase in the debt provision to 85-90bp from 50bp and 70bp, respectively.
Earnings in 2H13 are anticipated to grow to the target because the bank has already
projected to see deceleration in the new car market. SMEs and corporate loans would grow
aggressively in 2H13, while the quality asset is still in a controllable level with NPL to total
loan ratio of 4.2%. In spite of an increase in NPL from the used-car hire purchase loans, the
concern would be alleviated by the bank’s more cautious policy regarding the loan issuance.
Moreover, the debt provision increase in 2Q13 would make the coverage ratio (LLR/NPL)
touch 100%, rival peers, from only 75% at end-1Q13. Tier-1 capital after the debt provision
increase would remain high at 9-10%. Combined with tier-2 capital of around 5-6%, CAR
would be as high as 14-15%, which is very healthy.
- Likely to cut FV. Share price still has low PBV and PER. Downside limited
We reiterate our “BUY” recommendation. 2013’s fair value is B53.95, but it might decrease
after 2Q13’s earnings declaration. The current share price has low PBV and PER comparing to
the sector, thus helping reduce risks amidst the market fluctuation.