Muangthai Leasing

Muangthai Leasing Plc 

 

We expect MTLS to report strong 3Q15E net profit of Bt212mn, up 53% YoY and 16% QoQ, supported by its expansion to 900 branches by end-3Q15 and more financial products with strong loan demand of 48% YoY. Moreover, with a newly assigned credit rating of BBB (Stable), MTLS now has more funding opportunities at lower cost. These factors should boost net interest income by 61% YoY and 18% QoQ. Opex growth seems high but is coming from a low base; revenue return is sufficient and puts the cost-to-income ratio at around 54%. Asset quality remains one of the strengths of MTLS, keeping credit costs low with a sufficient coverage ratio of 272% and an NPL ratio of 1.1%. We reiterate our Outperform rating and Bt24.50 FP. MTLS is expected to announce 3Q15 results on 11 November. Investment highlight 

- Expansion to 900 branches drives loan growth. We expect MTLS to report strong net loan growth of 48% YoY, 9% QoQ and 38% YTD, reaching Bt9.8bn vs our full-year forecast of 44%. During 3Q15, MTLS continued to expand its branch network nationwide, especially in the South, which remains underpenetrated for the company. The expansion from 500 branches at end-2014 to 900 branches in 3Q15 widens the customer base, while loan demand from existing customers remains strong with more products available (pickup-backed loans, land title, nanofinance) in 3Q, which brings for new crop season. Momentum will continue through 4Q, as provincial households will require liquidity support for festive events. 

- More products and increased funding opportunities will help NIM. We assume a yield on loans of 24.3%, supported by a higher contribution from new financial products, while cost of funds will decline significantly to 5.03% from 5.66% last quarter. As a result, NIM should improve to 21.9%. MTLS’ rating was recently assigned at BBB (Stable); this will provide increased funding opportunities to the company at lower interest rates than are available through bank loans. MTLS has issued financial notes worth a total of about Bt3bn, at interest rates around 4.0%. Thus, we expect net interest income to increase by 61% YoY and 18% QoQ.  

- Opex high this quarter; decreases ahead. With aggressive branch expansion from a low base of 500 to 900 during 9M15, we expect opex to increase by 50% YoY. Nevertheless, thanks to the expansion’s success and solid revenue contribution, cost-to-income ratio should be fine at 54.3%, down from 56% last quarter. When MTLS achieves the target of 900 branches, we believe 4Q opex will be lower than in 3Q. Also, we expect opex growth will decline for MTLS in the years ahead once the network is large enough, amid strong demand for liquidity support in the provinces. As a result, at the operating level, we expect PPOP to increase by 55% YoY and 20% QoQ.  

- Asset quality still excellent. We expect minimal credit cost for MTLS at 0.62%, or around Bt15mn, thanks to its strengths in debt collection and customer screening. The NPL ratio will stay at a low 1.1% in this quarter with sufficient coverage ratio of 272%. Asset quality is still one of the factors that make MTLS an attractive investment, in our opinion.  

Valuation 

- We maintain our earnings forecast with a 2016 FP of Bt24.50 based on the DDM method with sustainable ROE of 20%. The stock is now trading at 1-year forward PER of 35.9 and PBV of 6.0x or around -1 S.D. from the historical mean.