Thanachart Capital
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Confirm no capital increase. Hire-purchase loan to remain robust until 1H13 BUY Fair Value (B) 40.00 Market cap (B bn) 43.66 Aggressive growth in all types of loan with progress in NPL problem solving
Life insurance business sell awaits ahead…confirm no
capital increase
Time for TCAP to outperform other mid- and small-cap
banks
According to the analyst meeting yesterday (9 August), business outlook of
TCAP in the rest of 2012 and the next 2 years is still prosperous. 1) Net
growth of performing loans in car hire-purchase (66%) and corporate and
SME (34%) businesses in the rest of 2012 is very strong. Particularly, car
hire purchase loan has benefited substantially from the growth in domestic
car sales. Monthly hire-purchase loan issuance has peaked at 35,000-40,000
cars on average and the aggressive loan growth is foreseen until mid 2013.
At the same time, for corporate and SME loans, although the growth in 1H12
was slim due to high debt repayment, it would become accelerated again in
2H12. Although net loan growth in 1H12 stood high at 5.7% from end-2011,
the bank has kept its net loan growth target for FY2012 unchanged at
10%yoy (equal to our projection) due to continuously decreasing NPL in
2H12 (target at end-2012 is 4.5% from 5.1% of total loan at end-1H12)
despite disappointing loan growth. 2) The bank has targeted to increase a
proportion of retail loan to 75% of total loans in the next 2 years, focusing on
high yield personal loan which will be advantageous for NIM in the long run. Life insurance business sell awaits ahead…confirm no
capital increase
A sell of a life insurance business of 2 companies in which TCAP has stakes
(Thanachart Life Insurance and Nakornluangthai Life Insurance) awaits
ahead. The sell is believed to generate worthwhile benefits for the bank as it
is a high profitability business. After selling the life insurance business, the
bank would turn to focus on fee income from Bancassurance instead. The
purpose of the sell of the life insurance business is to reduce burden in
maintaining the capital adequacy ratio (investment in the life insurance
companies will be deducted from the capital of the bank in calculation of the
capital adequacy ratio according to the BOT’s criteria), so it would help
alleviate the market’s concern about possible capital increase. Moreover, the
management also confirmed at the meeting no capital increase, so it would
help unlock TCAP’s share price which has been pressured by this issue.
Time for TCAP to outperform other mid- and small-cap
banks
We recommend BUY and select TCAP as a top pick of the mid- and small-cap
banks. The upside is attractive at 22% from the fair value in 2012 at B40, at
1.21x PBV under long-term ROE forecast of 14.5%. In addition, share price of
TCAP since the beginning of the year until now has slight outperformed the
market but substantially underperformed peers. 2012’s PBV is low at only 1x,
lower than the sector’s average of 1.8x and the regional average of 1.5x,
with dividend yield expected at 4% p.a. (paying semi-annually).
