Thanachart Capital

Thanachart Capital Plc (TCAP)

- 3Q13A: Weaker results as expected. 3Q13A net profit surged 34% YoY but fell 59% QoQ to Bt1.66bn, in line with our forecast. Overall 3Q13A was weaker in terms of loan growth (zero QoQ), non-NII and asset quality along with essentially flat NIM and continued tightening opex (as the only key earnings growth driver). If we exclude extra items booked in 2Q13, the Bt12.3bn investment gain from the sale of TLIFE, which was partly offset by Bt5.4bn extra provisions and extra expenses on potential uncollectible claims from reinsurers, 3Q13 earnings would show a rise of 27% QoQ to Bt350mn.     
Key points:
1. Loan growth: -0.1% QoQ vs. 2.2% QoQ for 2Q13 on high corporate loan repayments. 9M13 loan growth was 4.3%, well behind our original 2013F forecast of 8%. We cut 2013F loan growth to 7%.
2. Net interest margin: Stagnant QoQ. Despite the absence of windfall from debt restructuring, yield on loans edged up 1 bps QoQ, underpinned by a lower proportion of low-yield corporate loans. Cost of funds edged up 3 bps QoQ.
3. Non-interest income: -76% QoQ without the Bt12.3bn investment gain from the sale of TLIFE, plus weaker fee (-9% QoQ) and insurance (-20% QoQ) incomes.
4. Cost to income ratio: Down to 52.4% from 61.5% for 2Q13 due to a continued tightening of opex and the absence of extra expenses for non-life insurance on potential uncollectible claims from reinsurers.
5. Asset quality: NPL amount rose 2% QoQ, mainly used car loans, bringing NPL ratio up to 4.74% from 4.64% at 2Q13. Provisions fell 74% QoQ, equivalent to a credit cost of 0.86%, above the guidance of 0.75%. LLR coverage was stable at 83%.
  Maintain Neutral. We maintain Neutral on TCAP. Though TCAP is slightly undervalued, it still faces headwinds on loan growth and asset quality.