Thanachart Capital

Thanachart Capital Plc (TCAP)

TCAP announces sale of TLife to Prudential Life at B17.5bn

TCAP notified the SET that TBANK (TCAP holds 51% stake) has reached an agreement on selling the entire common shares of TLife under its holding (100%) to Prudential Life Assurance (Thailand) Plc. The total transaction consideration is B17.5bn, subject to a post-completion
adjustment based on agreed terms to reflect the net asset value as at the completion date, with a further payment of B5bn payable 12 months after completion. Key closing conditions of the transaction include approval by the Office of Insurance Commission as well as both parties signing an agreed form of the Exclusive Bancassurance Agreement. Payment of the consideration and transfer of the shares are expected to occur during the first quarter of 2013.

Benefit TCAP…worry over capital increase alleviated, core T1 stronger, no effect on profit base
We have a positive outlook toward TCAP’s plan of life insurance business sale. 1) The plan has helped alleviate concern over possible capital raising in the next 2 years from stronger capital adequacy ratio. The value of the life insurance business after investment cost (of around
B1bn) and net after tax would be B6.7bn or around B5.24/share. Combined with 2012’s net profit which is forecasted at more than B6bn, the total value would be close to the goodwill from the company’s merger with SCIB at more than B13bn which is now included in tier 1 capital of TCAP. Tier 1 capital of TCAP after the business sale is estimated close to tier 1 at end-1H12 of 8.9%. However, overall core tier 1 (Basel 3) will become stronger and keep the company far from concern over capital increase in the next 2 years. 2) Net profit forecast in 2013-2014 would not be impacted by the sale of life insurance business. Although TCAP would lose profit from life insurance business by more than B700-800m/year (net after MI and tax), we believe the growth of net loan in 2013 would shift to 15%yoy (very likely if considering from net loan growth in 9M12 which already stood at 10% from end-2011 and has a chance to hit no less than 12-13% at the end of the year), still higher than our previous forecast of only 12%yoy. Moreover, there would be benefit from rising fee income from Bancassurance. The sell of life insurance business in 2013 will make net profit in 2013 of TCAP increase to B13.7bn, more than double from the prior forecast, and make BVS in 2013 increase to B40.57/share.

2013’s FV increases to B49.14. Top pick of mid-cap banks
We reiterate our BUY recommendation for TCAP and select it as a top pick of the mid-cap banks. 2013’s fair value after revision is B49.14/share (from B44).