Thanachart Capital

Thanachart Capital Plc (TCAP)
Earnings fell 9.4% short of our estimate
TCAP posted a 2Q13 bottom-line of Bt4.1bn, up by 139% YoY and 109% QoQ. The result was 9.4% below our model and 12.3% short of the Bloomberg consensus, attributable to heavier loan loss provisions than expected. TCAP set LLPs of Bt6.4bn for the quarter (we had assumed Bt6bn). Stripping out the item, pre-provision operating profit totaled Bt3.8bn, up 11% YoY but down 20% QoQ. 1H13 earnings shot up 108% to Bt6bn, which represents 54% of our FY13 projection of Bt11bn.
Results highlights
Lending jumped by 2.1% QoQ and 18.0% YoY to Bt850bn at end-June—in line with our estimate—driven by auto HP loans (which were boosted by the government’s first-time car buyer income tax rebate) and corporate loans. Net interest margin (NIM) was 2.78% in 2Q13, up 3 bps QoQ but down 11 bps YoY. Net interest income (NII) grew by 6% YoY and 4% QoQ to Bt6.6bn. The 2Q13 cost/income ratio jumped to 60.6% from 52.3% the previous quarter.
TCAP raised its loan loss provisioning by 1,214% YoY and 370% QoQ to Bt6.42bn (we had assumed 2Q13 LLPs of only Bt6bn). The NPLs/loans ratio increased to 4.45% at end-June from 4.22% at end-March, while the loan loss coverage ratio rose to 84.0% from 75.4% three months earlier.
Note that TBANK booked a one-off gain of Bt12.5bn from the sale of Thanachart Life, 50% of which was allocated to LLPs of Bt6.4bn. The reminder (after 50% profit-sharing with Scotiabank and corporate tax) boosted TCAP’s bottom-line by Bt2bn.
Outlook 
After selling Thanachart Life Insurance to Prudential Life Assurance during 2Q13, we expect TCAP to post much lower fee-based income for 3Q13, while loan loss provisions may decline QoQ.  
What’s changed?
We maintain our FY13 net profit forecast at Bt11bn, up 100% YoY, led by rising core earnings and the sale of Thanachart Life Insurance. The scale of the bottom-line rise brought the bank holding company’s CAR from 13.0% at end-March to 13.9% at end-June, which would obviate the possibility of it having to make a cash call within the next couple of years.
Recommendation
TCAP currently trades at an undemanding YE13 PBV of 0.9x, far below the Thai Bank sector mean of 1.7x. We believe that the bank holding company’s current low valuation and good dividend yield of 4.6% will strengthen its share price significantly this year. Our BUY rating stands.