Thanachart Capital

Thanachart Capital Plc (TCAP)

Profit in line with estimate: TCAP posted a 4Q11 profit of Bt938, down by 30% QoQ and 32% YoY. The result was in line with our model and the consensus. Note that 4Q11 pre-provision operating profit totaled Bt2.1bn, down by 30% QoQ and 47% YoY. FY11 earnings fell 11% YoY to Bt5bn, which represents 100% of our FY11 forecast.
Results highlights: Lending was flat QoQ and up 5% YoY to Bt677bn at YE11—close to our model. Net interest margin (NIM) slipped 29 bps QoQ to 2.47% in 4Q11, due to flat lending and a sharp 9% QoQ rise in issuance of Bills of Exchange (B/E). As such, net interest income (NII) declined by 9% QoQ and 18% YoY to Bt5.6bn. TCAP cut its loan loss provisioning by 39% YoY to Bt410m. The NPLs/loans ratio dipped to 5.9% at YE11 from 6.5% at end-Sept, while the loan loss coverage ratio remained unchanged QoQ at 67%.
Outlook & model adjustments: FY12 earnings will be weak, as the BOT looks set to levy new fees on deposits and bank-issued B/Es in 2H12 in order to service FIDF debt. Lending competition is also likely to intensify. We have cut both our FY12 and FY13 NIM assumptions by 20 bps to 2.53% and 2.56%, respectively. Hence, we have revised down our FY12-13 earnings projections by 7% for both years to Bt5.6bn and Bt6.5bn, respectively.
Recommendation: Given our diminished expectations for FY12 and FY13 profits, we have cut our TCAP YE12 target price from Bt33.50 to Bt30, pegged to a fair YE12 PBV of 1x. Although extra expenses related to the business consolidation of SCIB into TBANK will fall sharply, we anticipate that loan loss provisions will rise in order to build the loan loss coverage ratio from 67% at YE12 to a level closer to the sectoral mean at 105%. We, thus, forecast that FY12 earnings will increase merely 12%.
But given its current PBV of 0.8x and attractive dividend yield of 5.9%, we believe the stock price has only limited downside risk. There would be scope for upside if domestic auto sales were to recover strongly—TBANK has a big HP operation. We maintain our TRADING BUY rating.