Thanachart Capital

Thanachart Capital Plc (TCAP) 

What’s new?

TCAP launched a stock repurchase program yesterday with a budgeted ceiling of Bt1.4bn and a limit of 56.4m shares (4.42% of total paid-up capital). The buyback period will run from February 10, 2015 to August 9, 2015. The repurchase share price shall not exceed a 15% premium to the average closing price during the five business days preceding each transaction. 

Adequate capital and internal cash flows for the program

The bank holding company has a strong capital base of Bt114bn (equivalent to a capital adequacy ratio of 15.83% of risk-weighted assets; the Bank of Thailand’s minimum requirement is 8.5%). As such, TCAP can comfortably support the program and pay dividends for 2H14 and FY15 operations.

Fundamentals essentially unchanged 

We do not expect the program to have any effect on the FY15 operation. Our FY15 earnings forecast stands unchanged at Bt5.5bn, up 7% YoY. TCAP currently trades at an undemanding YE15 PBV of only 0.7x, far below the Thai Bank sector mean of 1.4x. We anticipate fair dividend yields of 4.6% for FY14 and 4.9% for FY15.

Recommendation

The buyback will support the share price during the period that it runs. However, the history of share repurchase schemes shows that in most cases the stock price reverts back toward its previous level within a couple of months of the end of the program. But the scheme presents a trading opportunity.

We anticipate that the buyback will push up the stock price up in the short-term. Hence we have upgraded our rating from HOLD to TRADING BUY with a target price of Bt38.50.