Thitikorn

Thitikorn Plc (TK)
Investment thesis
We are now less bullish about TK’s outlook, due to: 1) slowing consumption growth, particularly upcountry, 2) risk to asset quality, which may require heavier LLPs than modeled, and 3) higher OPEX tied to credit control. Thus, we have cut our earnings forecasts by 16.5% to Bt710m for FY13 and by 23.0% to Bt820m for FY14. We have also scaled back our rating from BUY to TRADING BUY with a new YE13 target price of Bt15.2, pegged to a YE13 PBV of 1.8x (derived from average ROE of 18.4%, Ke of 12.8% and a growth rate of 6%).
2Q13 lending growth remained good
Despite the nationwide 6.4% YoY drop in motorcycle sales in 2Q13 to 549k units, TK said its HP loans grew by 12-13% YoY, attributable to a greater focus on upcountry business. The operation is now driven by ex-Bangkok demand (about 65% of the loan portfolio is in the provinces). Management expects this proportion to rise to 80% by YE14. TK guides for FY13 loan growth of above 10% (against 14% last year). We have revised down our loan growth projection for this year from 15% to 12%.
Rising LLPs, higher QoQ OPEX
Despite a low NPLs/loans ratio of 4% with a loan loss coverage ratio of 137%, the firm aims to set heavier LLPs for 2Q13 in order to prepare for the risk of a surge in NPLs. We expect TK to set provisions for the quarter of Bt300m, up by 4% QoQ and 29% YoY. Our FY13 LLPs assumption remains Bt1bn, up 4% YoY. Note also that TK now guides for extra costs tied to credit control in 2Q13, making for an OPEX jump of 13% YoY and 17% QoQ for the quarter.
NIM will decline slightly QoQ
More intense competition combined with a slight rise in funding costs will have squeezed 2Q13 NIM a little QoQ, according to management. We assume a NIM of 30.8% for the quarter, down 33 bps QoQ. Note that we forecast TK’s FY13 NIM at 30.78% with a very low D/E ratio of 1.57x, which means that about 60% of its funding comprises equity (no funding charge for that chunk of the funding mix). We expect TK to sustain its NIM at this level through the remainder of the year with an average funding cost of 3.7%.
Expect 2Q13 earnings to drop 22% YoY
Because we now assume heavier YoY LLPs, rising OPEX and some NIM erosion, we estimate poor earnings of Bt135m for 2Q13, down by 22% YoY and 40% QoQ. We also model for a 2Q13 cost/income ratio of 52.6%, up from 45.5% in 1Q13. TK’s earnings should rise slightly in 3Q13 on lighter QoQ LLPs and OPEX.