Thanachart Capital

Thanachart Capital Plc (TCAP)

 

- Higher debt provision not to weaken 3Q15 profit much  

TCAP's 3Q15 net profit is estimated at B1.41bn, climbing up 1.4%qoq and 17.5%yoy. Although the company has increased its debt provision to B2bn with credit cost of 112bp (versus the normal level of B1.8bn with credit cost of 90bp), this does not affect TCAP's performance because tax benefit from TBANK (TCAP holds 51% stake) has been used to set the higher provision; this means the company does not recognize income tax in 3Q15 (but slight income tax from subsidiaries is still booked in the consolidated statement). Therefore, end-3Q15 coverage ratio would increase to (consolidated statement) to 105% (including effect from NPL selling of over B1bn and NPL restructuring). NPL to total loan ratio (TBANK - consolidated statement) is projected to drop from 3.65% at end-2Q15 to 3.50% at end-3Q15. 

- Revise down forecast slightly. Aim to be stronger  

We revise down TCAP's 2015-2016 earnings forecast slightly to reflect higher credit cost and lower income tax thanks to tax benefit from TBANK. We still expect net profit to grow 8.1%p.a in 2015. Although the core business, car leasing, still needs some more time to recover, the bank’s strategy of restructuring its loan segment mix and cost management (increasing CASA, restructuring capital base to lower cost) would improve fee income and asset quality management (aggressively decreasing NPL). The bank also made all tier 1 capital a common equity tier 1 (CET1), thus increasing tier 1 capital to 10%. All these positive factors would help revive TCAP’s earnings by 18.4%yoy in 2016. In addition, if used car export tax is reduced in the near future, domestic used car prices would increase, benefiting TCAP as used car demand would grow and loss from repossessed car sales would drop (not included in our forecast yet). 

- Reaching BV level soon. Attractive dividend yield  

We recommend BUY. Under the new revision, we maintain 2015 fair value (GGM, 0.87x PBV, 11% long-term ROE, 4% terminal growth rate) at B37.50. TCAP is likely to outperform peers and PBV would reach the five-year average of 1x in the near future owing to positive factors.