Thanachart Capital
Profit declined, due to bigger LLPs
Thanachart Capital Plc (TCAP)
Earnings fell 11% short of our estimate
TCAP announced a 4Q12 profit of Bt1.34bn, up by 8% QoQ and 43% YoY. The result was 11% below our model (but 5% above the Bloomberg consensus), attributable to bigger loan loss provisions (LLPs) than assumed (we expected Bt700m; TCAP set aside Bt903m). 4Q12 pre-provision operating profit totaled Bt3.5bn, up by 67% YoY and 3% QoQ. FY12 earnings rose 10% YoY to Bt5.5bn, which represents 96% of our FY12 earnings projection.
Results highlights
Lending jumped by 7.8% QoQ and 20.2% YoY to Bt813bn at YE12—above to our assumption of 15%YoY growth—driven by HP, which was boosted by the government’s first-time car buyer income tax rebate. Net interest margin (NIM) slipped 9 bps QoQ to 2.79% in 4Q12. However, stronger lending growth offset the effect of NIM squeeze. As such, net interest income (NII) grew by 6% QoQ and 15% YoY to Bt6.4bn.
TCAP raised its loan loss provisioning by 120% YoY (but reduced it 18% QoQ) to Bt903m (we had assumed 4Q12 LLPs of only Bt700m). The NPLs/loans ratio dipped to 4.32% at YE12 from 4.9% at end-September, while the loan loss coverage ratio inched up to 73.2% at YE12 from 69.6% three months earlier.
Outlook
In addition to normal core earnings growth for 1Q13, we anticipate that TCAP will post an investment gain of 4.5bn from selling Thanachart Life Insurance to Prudential Life Assurance during the quarter.
Recommendation
We forecast a much stronger net profit of Bt11bn for FY13, up about 100% YoY, led by core earnings and the sale of Thanachart Life Insurance. The scale of the bottom-line rise would enable the bank holding company to strengthen its capital base (its CAR is currently 14%; it may rise to 15%), which would obviate the possibility of it having to make a cash call over the long-term. TCAP currently trades at an undemanding YE13 PBV of 0.9x, far below the Thai Bank sector mean of 1.7x. Given its cheap valuation and the share buyback program, we believe the stock with rise significantly this year. Our BUY rating stands.
