Thanachart Capital

Thanachart Capital Plc (TCAP) 

 

Investment thesis

We maintain our FY15 profit forecast unchanged at Bt5.3bn, an increase of 3.4% YoY. However, TCAP’s YE15 loan-loss-coverage ratio of 100% is adequate for its 2H15 and FY16 operations due to its less extra loan-loss-provision (LPP) setting. There is some upside to TCAP’s earnings profile from the possibility of lower LPP than was modeled, due to the high loan-loss-coverage ratio and better asset quality management in 2H15. Additionally, the stock trades at the cheapest YE15 PBV of our Bank coverage at 0.7x; the sectoral mean is 1.4x. We expect dividend yields of 4.9% for FY15 and 5.4% in FY16. Our HOLD rating stands as TCAP is a good dividend stock.

FY15 loan growth target cut to flat from former 2-4% 

TCAP’s management said that its FY15 gross loan growth guidance of 2-4% might not be cut to flat amid a slowdown in new car sales. Its HP loans could contract 3-4% on poor new car sales, management said. The company expected its FY15 new car sales to drop slightly or be close to last year’s number. We forecast TCAP’s FY15 loan growth at 0%. The bank will switch its lending focus to corporate, SME, and other retail loans (personal loans and mortgages). Management expects an FY15 NIM in the 2.7-2.9% range. The CASA proportion of the funding mix is set to reach 35-40% of total deposit amounts at YE15 from 36% at YE14. We assume a NIM of 2.7% for FY15, basically flat YoY.

Falling LLP setting in 2H15 …

After reaching 100% loan-loss-coverage ratio in June 2015, TCAP says it will gradually build that ratio further to 130% during the next 12 months. Management sets its 2H15 LLP peg to 0.80-0.90% of gross loans from 1.44% in 1H15 (we expect FY15 LLP of Bt7.8bn, at a credit cost of 93 bps). It also targets reducing its NPL/loan ratio to 3.4-3.8% at YE15 from 3.65% in 2Q15. We view that the reduced LLP compared to our numbers could provide scope for earnings upsides this year. It should be noted that we expect that TCAP aims to utilize the remaining tax credit (from incurred losses on buying SCIB shares in FY10) again for setting LLP further in 2H15 and next year.

High capital to support dividend policy and treasury stock

TCAP has a capital adequacy ratio of 14.3% (with capital Tier 1 of 9.8%) at the end of June 2015. Given the lack of aggressive business expansion this year, we believe that the firm will be able to keep paying a good dividend yield of 4.9% this year and 5.3% next year. Note that last week, TCAP closed its stock repurchase program of Bt1.4bn after repurchasing 41.35m TCAP shares at the average price of 33.86/share. We view that its current capital base will be high enough for dividend payment without a cash call.