Thanachart Capital

Thanachart Capital Plc (TCAP) 

Investment thesis

We maintain our FY15 profit forecast unchanged at Bt5.5bn, up by 7.4% YoY. TCAP’s YE14 loan loss coverage ratio of 86% is far below its YE15 target of 100%. Our FY15 LLP assumption is Bt7.8bn (slightly higher than management guidance). However, the stock trades at the cheapest YE15 PBV of our Bank coverage of 0.75x (the sectoral mean is 1.4x). We expect fair dividend yields of 4.8% for FY15 and 5.3% in FY16. But our TRADING BUY rating was prompted by management’s announcement of a stock repurchase program. 

Conservative FY15 loan growth guidance of 2-4%

TCAP guides for FY15 gross lending growth of 2-4%. Both corporate and SME loans are targeted to expand by 8-10%. In contrast, its HP loans will decline by 2-3%, given the weak car sales environment. Domestic new car sales dived 34% to 882k units in 2014 and management expects sales to be flattish or down slightly this year. We forecast TCAP’s FY15 loan growth at 3%, led by corporate, SME and non-HP retail business (personal loans and mortgages). Management expects an FY15 NIM in the 2.7-2.9% range. The CASA proportion of the funding mix is targeted at 35-40% of total deposits at YE15 (it was 36% at YE14). We assume a NIM of 2.7% for FY15, basically flat YoY.

Loan loss provisions are targeted to fall in FY15

After posting an 86% loan loss coverage ratio for YE14, TCAP says it will gradually build its coverage further to 100% by YE15. The FY15 loan-loss provisioning peg is 0.80-0.90% of gross loans, down slightly from 0.93% last year (we assume FY15 LLPs of Bt7.8bn, an implied credit cost of 93 bps). TCAP also targets reducing its YE14 NPLs/loans ratio to 3.4-3.8% at YE15 from 4.1% at YE14. If loan loss provisions were to be lighter than our assumption, there would be scope for upside to our earnings model.

High CAR will support dividend policy and stock buyback

Last week, TCAP announced a stock repurchase program of Bt1.4bn. It aims to buy back 56.4m of its shares between February 10 and August 9, which should push up its share price to near our target. The bank holding company’s YE14 capital adequacy ratio was 13.6% (Tier-1 of 9.4%). Business expansion will be only modest this year, so TCAP can comfortably accommodate the stock buyback and fair dividend payments (we assume 4.8% for FY15 and 5.3% for FY16) without much effect on its capital base.