Thanachart Capital

Thanachart Capital Plc (TCAP)

Profit 17% below estimate
TCAP posted a 3Q12 profit of Bt1.24bn, down by 27% QoQ and 7% YoY. The result missed our model and the Bloomberg consensus by 17%, attributable to bigger loan loss provisions (LLPs) than assumed (we expected Bt800m; TCAP set aside Bt1.1bn). 3Q12 pre-provision operating profit totaled Bt3.44bn, up by 14% YoY and 2% QoQ. 9M12 earnings inched up 2% YoY to Bt4.1bn, which represents 69% of our FY12 earnings forecast.

Results highlights
Lending grew by 4.8% QoQ and 11.5% YoY to Bt755bn at end-September—close to our model. Net interest margin (NIM) slipped 2 bps QoQ to 2.88% in 3Q12.  As such, net interest income (NII) declined by 2% QoQ and 2% YoY to Bt6bn.
TCAP raised its loan loss provisioning by 752% YoY and 125% QoQ to Bt1.1bn (we had assumed 3Q12 LLPs of only Bt800m). The NPLs/loans ratio dipped to 4.9% at end-September from 5.1% at end-June, while the loan loss coverage ratio inched up to 69.6% from 68.6% three months earlier.

Outlook 
In order to fine-tune for TCAP’s heavy LLP policy, we have raised our FY12 and FY13 LLP assumptions to Bt3.0bn and Bt3.2bn, respectively, from Bt2.5bn and Bt3.0bn. As such, we have cut our earnings projections to Bt5.7bn for FY12 and Bt6.8bn for FY13 from Bt6bn and Bt7bn, respectively.

Recommendation
Because we have pared back our earnings forecasts, we have cut our YE13 target price from Bt50 to Bt48, pegged to a PBV of 1.31x. TCAP’s outlook remains favorable, given the low interest rate environment (51% of loan portfolio is in HP business) and its new policy to increase concentration on high-yield lending sub-categories—small SME and specific retail (such as HP for used cars). Its CAR remains adequate at 14.65% (with 9.1% Tier-1) to sustain its operation without need for a cash call for at least two years. The stock currently trades at an undemanding YE13 PBV of 1.0x compared with a Bank sector mean of 1.6x. We maintain our BUY rating.