Thanachart Capital

Thanachart Capital Plc (TCAP)

Q1 2013’s profit to grow 13.5%qoq. Loan strengthens despite stable NIM.
Supported by subsidiaries’ profit
We estimate TCAP’s net profit in 1Q13 at B1.51bn, growing 13.5%qoq and 27.1%yoy
due solely to the core businesses. 1) Net interest income is projected to grow
5.3%qoq and 20.6%yoy, in line with the net loan growth in 1Q12 that is
anticipated to be remarkable at 2%qoq and 19%yoy (in line with our projection for
FY2013 at 12%yoy). The net loan growth would mainly benefit from auto hirepurchase
loans which have grown along with local auto sales, particularly because of
continuous car transfers as a result of the government’s first car scheme. For
corporate and SME loans, not much growth has been seen. NIM is projected to stay
flat from the prior quarter at 2.72%; despite a pressure from the low yield of new car
loans, it has been compensated by decreasing funding cost since the prior quarter. In
1Q13, TCAP hasn’t launched a campaign of high deposit rate to raise deposit, so there
have been benefits from the interest rate cut in 4Q12. 2) Fee income in 1Q13 is
projected to increase 13.6%qoq and 37%yoy, in line with increasing car hirepurchase
loan transactions (such as license plate renewal fee and tax). 3) The
income from other operation is anticipated to escalate 13.3%qoq but weaken
10.3%yoy, due mainly to the growth of income from insurance and life insurance
businesses of subsidiaries. Other than that, there are benefits from the shining capital
market, reflecting from daily securities trading volume that has increased to more
than B60bn on average. As a result, the income from brokerage business and profit
from investment has thrived significantly from the prior quarter. 4) Cost to income
ratio in 1Q13 is projected to decline to 54.12%, hitting a 10-quarter low,
thanking to the bank’s strict cost control (operating expense is anticipated to decrease
2.3%qoq and 4%yoy). Furthermore, the income growth at an accelerated rate would
also help boost the earnings results of TCAP’s main business in this quarter.
Accordingly, 1Q13’s net profit is estimated to comprise 11% to our FY2013’s net profit
forecast.

B7bn profit from TLife sale strengthen capital base and push profit in Q2 2013
Overall business outlook of TCAP in 2013 would be more aggressive with the policy of
focusing on small SMEs (hardware stores and old-style shop houses which have
security) which have high yield. Accordingly, this will be more beneficial to the bank’s
NIM. Meanwhile, although car hire-purchase loan growth is projected to decline in
2H13, income generating efficiency of this type of loan will be strong throughout 2013
because car supply (eco cars in particular) still has a lag time in transferring to
customers in the next 6-9 months for the current sales. We estimate 2013’s net profit
growth at 23%yoy. The cash flow of more than B10bn from TLife sale will not only
strengthen TCAP’s capital base, which would eliminate the concern about capital
raising, but also help generate returns in a form of short-term investment by around
one-third of the profit of B1.5bn from TLife that will disappear in 2013. In addition,
the rest returns will be recognized in a form of income from Bancassurance from its
position as an exclusive partner with Prudential life which has various life insurance
products, especially the popular endowment and whole life. Accordingly, we foresee
aggressive growth potential from this business in the long run.

Buy. Share price might outperform the market due to profit growth
We reiterate our “BUY” recommendation. 2013’s fair value is B49.14, implying more
than 12% upside from the current share price, with average dividend yield of 4-5%
p.a. (paying semiannually). Recently, TCAP has announced a dividend payment for
2H12 at B0.90/share or a dividend yield of 2%. XD date is on 11 April 2013 and the
payment date is on 30 April 2013.