Thanachart Capital

Thanachart Capital Plc (TCAP)   

 

TCAP’s 2Q15 earnings rose 13% YoY and 5% QoQ to Bt1.4bn, slightly below our forecast of Bt1.47bn. TCAP reversed Bt1.3bn in income tax liability into income in 2Q15 after completing the liquidation process of a subsidiary (SCIB) which generated a tax benefit (tax loss). TCAP also had a sizable Bt992mn gain on investment (mainly bonds) and NPAs. TCAP used this extra income to make Bt1.8bn in extra provisions in addition to the Bt1.74bn normalized provisions, despite an 8% or Bt2.4bn QoQ fall in NPLs, mainly through sale to a third party. This boosted its LLR coverage significantly to 98% from 88% at 1Q15. Pre-provision profit rose 6% QoQ, solely from gain on investment and NPAs. Negative loan growth (-1.6% QoQ) was offset by an 11 bps NIM expansion (benefit from interest rate cuts), leaving net interest income little changed.     

Cut 2015F loan growth. We slashed 2015F loan growth to -8% from -2% to fine tune with the actual contraction of 5% YTD, in line with other HP-focused banks. This reduced earnings by 2% for 2015F-2016F and led to a cut in TP from Bt44 to Bt42 (0.95x mid-2016F BVPS). 

Maintain Buy as valuation is at a deep discount. TCAP is undervalued, trading at a deep discount of 0.76x 2015F PBV and 7.3x 2015F PER. This reflects market perception of poor loan growth prospects and slow auto loans – though its asset quality has gradually recovered, underpinned by a recovery in used car prices and a sharp hike in LLR coverage in 2Q15.