Thanachart Capital

Thanachart Capital Plc (TCAP)

 

Raising LLR coverage brought 3Q15 slightly below expectation. 3Q15 profit rose 13% YoY but slid 3% QoQ to Bt1.35bn, below SCBS’ Bt1.47bn and consensus’ Bt1.45bn, but this was because the bank made higher provisions than expected, making general provisions to build LLR coverage despite easing NPLs. NPLs fell 9% or Bt2.7bn QoQ, mainly due to sale of NPLs. As tax loss carried forward from the liquidation of SCIB allowed TBANK (its subsidiary) to pay no tax, TCAP took the opportunity to make Bt180mn in general provisions on top of its Bt1.5bn (-12% QoQ) normalized provisions, which raised LLR coverage to 109% at 3Q15 from 98% 2Q15. Pre-provision profit fell 8% QoQ due to a QoQ reduction in investment gain. Fee income rose an impressive 23% QoQ, mainly driven by bancassurance. Thanks to new corporate loans, its QoQ loan contraction eased to -0.6% QoQ in 3Q15 from -1.6% QoQ in 2Q15 and -3.3% QoQ in 1Q15. Its YTD loan growth was -5%, vs. our full-year forecast of -8%. Its NIM inched up by 2 bps QoQ.       

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.