Thanachart Capital

Thanachart Capital Plc (TCAP)

- 4Q13 profit shrinks qoq. NIM shifts, expense surges, with profit from selling Vayupak
TCAP announced 4Q13 net profit at B1.53bn, 11% lower than our projection, shrinking
7.3%qoq but still growing 22.3%yoy, due to the following reasons. 1) Operating
expense in the quarter increased 7.5%qoq (dropping 2.7%yoy though) –
worse than expected, mainly an increase in loss from selling of repossessed cars.
However, cost to income ratio in 4Q13 rose only slightly from 49.46% in 3Q13 to
51.50%, thanks to a profit of approximately B450m (net after tax) from selling of
investment in Vayupak fund in this quarter. 2) Fee income in 4Q13 shifted only
0.2%qoq (but growing 8.0%yoy) – worse than expected. The fee growth from
retail transaction such as bancassurance for its partner Prudential Life and fund selling
was offset by decelerating brokerage fee income as a result of the sluggish market. 3)
Debt provisioning expense increased 2.7%qoq and 93.3%yoy – as expected.
Cost to income ratio stood at 88bp, rising slightly from 86bp in 3Q13 because of the
negative situation of used car business; although used car price has started to stabilize,
there was a massive loss from hurriedly selling of repossessed cars (the longer they are
held, the more value they would lost across a year). NPL at end-2013 dropped slightly
to 4.49% of total loans from 4.56% at end-3Q13. On the other hand, the following
positive factors could not help to drive 4Q13 net profit growth. 1) Net interest
income grew 4.9%qoq and 13.6%yoy – better than expected. On the contrary,
net loan growth stayed flat qoq but enlarged 4.7%yoy, which was insignificant when
compared with the growth in the past eight quarters and lower than FY2013 target we
have expected at 8%yoy because of continuous corporate loan repayment since the
beginning of the year. At the same time, SME loans stayed flat from end-2012, except
car leasing and other retail loans that still generated growth (11%yoy and 6%yoy,
respectively), mostly because of new car leasing loans. NIM in 4Q13 rose 9bp from the
previous quarter to 2.78%. Loan yield also increased, particularly from SME and retail
loans, against decreasing funding cost. Overall, FY2013 net profit of TCAP was
B9.23bn, growing 67.5%yoy, making yearly high.
- Cut 2014-2015 forecast. Core business remains flat. Focus on cost control
We cut our earnings forecast in 2014-2015 by 12.3% and 3.7%, respectively, in order
to reflect our previous overestimation of net loan growth and NIM. Cost to income ratio
is estimated at around 50%, down from 52.8% in 2013 as a result of the bank’s strict
cost controlling. After the forecast revision, normalized EPS in 2014-2015 is projected
to grow at a decelerated rate of 8.6%yoy and 8.7%yoy, respectively.
- Hold for dividend. New 2014 fair value is B33.39. Upside is still limited
We reiterate HOLD to receive an average dividend yield of 5-6% p.a. in the next few
years. New 2014 fair value after the forecast revision is B33.39 (from B39.26
previously), based on 0.78x PBV and long-term ROE forecast of 12%. Although TCAP’s
price has already undergone significant correction until the PBV and P/E ratio are very
low when compared with peers, a rebound is hindered by the sluggishness of the core
business, car leasing.