Thanachart Capital

Thanachart Capital Plc (TCAP)

Earnings overshot our estimate by 39.5%
TCAP posted 1Q13 earnings of Bt1.95bn, up by 468% QoQ and 64% YoY. The result was 39.5% over our model (but 2.2% below the Bloomberg consensus), attributable to extra gains from: 1) the investment portfolio of Bt210m, 2) sales on property foreclosures of Bt313m and 3) the reversal of pre-booked extra expenses of Bt312m on the divestment of Thanachart Life Assurance. We had expected 1Q13 extra gains of only Bt350m for the quarter. Stripping out such extra items, pre-provision operating profit totaled Bt4.7bn, up by 67% YoY and 33% QoQ. 1Q13 earnings represent 18% of our FY13 projection.
Results highlights
Lending jumped by 2.3% QoQ and 20.6% YoY to Bt832bn at end-March—in line with our assumption—driven by auto HP loans, which were boosted by the government’s first-time car buyer income tax rebate. Net interest margin (NIM) was 2.75% in 1Q13, down 4 bps QoQ but up 1 bps YoY. Likewise, net interest income (NII) grew 13% YoY but dipped 2% QoQ to Bt6.3bn.
TCAP raised its loan loss provisioning by 229% YoY and 51% QoQ to Bt1.37bn (we had assumed 1Q13 LLPs of only Bt1bn). The NPLs/loans ratio dipped to 4.22% at end-March from 4.32% at YE12, while the loan loss coverage ratio inched up to 75.4% from 73.2% three months earlier.
Outlook 
In addition to core earnings growth in 2Q13, we anticipate that TCAP will post an investment gain of 4.5bn from selling Thanachart Life Insurance to Prudential Life Assurance during the quarter. TBANK plans to use the extra gains and its strong core earnings to build its loan loss coverage ratio from 75.4% at end-March to 90% by YE13.
What’s changed?
We maintain our FY13 net profit forecast at Bt11bn, up 100% YoY, led by rising core earnings and the sale of Thanachart Life Insurance. The scale of the bottom-line rise will enable the bank holding company to strengthen its capital base (its CAR is currently 13%; it may rise to 14%), which would obviate the possibility of it having to make a cash call within the next couple of years.
Recommendation
TCAP currently trades at a very cheap YE13 PBV of 1.0x, far below the Thai Bank sector mean of 1.7x. We believe that the current low valuation combined with the share buyback program will strengthen TCAP’s share price significantly this year. Our BUY rating stands.