Thanachart Capital

Thanachart Capital Plc (TCAP)

2H13 business to meet target. Sluggish auto loans negated by other loans
TCAP is bullish that its business growth in 2H13 would be able to meet the target for FY2013,
especially the net loan growth target of 10%yoy after it has already grown 4.36% from end
2012. The growth has resulted mainly from the auto loans that thrived 8% from end-2012,
particularly for new cars. For used car loans, TCAP has slowed down their loan issuance since
the beginning of the year, in line with a historical decline of more than 30% in used car
prices as a result of the government’s first car scheme. Accordingly, the bank faced higher
NPL from this group of cars. Debt provision has also increased, making credit cost of used car
loans rise to 480bp. TCAP has adjusted its strategy in 2H13 by switching to focus more on
corporate and SME loans, while also emphasizing on retail auto cash loans. Although the
corporate and SME loans have decelerated in 1H13, they would revive in 2H13, and, with
their high yields, boost spread to the target of 2.50-2.70% (2.75% in 1H13). Moreover, the
bank could increase its low-cost deposit base (CASA) to 38% of total deposits in July (the
target is 35-40%), which is another factor to support the spread in 2H13. Fee income in
2H13 would also grow vigorously; although the insurance business and securities brokerage
business growth would not be as bright as in 1H13, significant growth is foreseen from
Bancassurance that would rally in 2H13 as a result of full income recognition from selling of
TLife to Prudential Life. Debt provision in 2H13 is anticipated to become less worrying as it
would normalize to a credit cost of around 70-80bp from 196bp in 1H13 (from extraordinary
provision of B5bn for future economic fluctuation according to the BOT’s guideline).
Furthermore, TCAP is confident that the significantly declining used car prices have already
reached the bottom and the bank has become more cautious about used car loans, so NPL
from this type of loans would improve comparing to 1H13, but it is still an unusual sign for
new car, corporate, and SME loans.
- Maintain 2013-2014 forecast. Portfolio distribution helps decrease friction
We maintain our FY2013-2014 earnings forecast, projecting norm EPS in 2013-2014 to grow
continuously by 16.1%yoy and 9.9%yoy, respectively. Pressure from auto hire purchase
loans that tend to weaken in the rest of the year has already been forecast, and the bank’s
good distribution of loan portfolio (other loans would grow more aggressively in 2H13) would
help decrease the friction. Moreover, the debt provision increase in 2Q13 has made coverage
ratio (LLR/NPL) rise to 85%, closer to peers’, from only 75% at end-1Q13. Tier-1 capital after
the debt provision remained high at 9%. Combined with tier-2 capital of around 5.45%, CAR
would be as high as 14.45%, which is very healthy.
- Reiterate BUY. Share price already reflects negative factors. PBV, PER very low
We reiterate our BUY recommendation. 2013 fair value is B46.50, based on PBV of 1.17x,
under long-term ROE forecast of 14.5%. The current share price has undergone correction
until it has very low PBV and PER comparing to the sector. Upside is 34%, with dividend yield
expected at more than 4% p.a.