Thanachart Capital

Thanachart Capital Plc (TCAP)

- Q1 2013’s profit beats expectation. Fee income grows aggressively with support from subsidiaries’ profit
TCAP declared 1Q13’s net profit at B1.95bn, growing 32.9%qoq and 57%yoy due mainly
to the core businesses. 1) Fee income in 1Q13 increased as large as 71.2%qoq
and 67.1%yoy – substantially better than expected, thanking to loan-related fee
income, particularly car hire-purchase loan transactions (such as license plate renewal
fee and tax). At the same time, non-loan-related fee income such as brokerage income
from securities business and fund sale transactions of subsidiaries also showed robust
growth following the facilitating market’s situation. In addition, in this quarter TCAP has
adjusted the income and expense from a life insurance business of TLife, which used to
be put in the consolidated financial statement, by showing only net profit from the
business under an item “profit for the period from discontinued operations” worth of
B312m because the asset was classified as held for sale in 2Q13 in the financial
statement. 2) Operating expense decreased 16.2%qoq and 3.5%yoy – better
than expected, due mainly to a decline in other expenses, especially marketing
expense and premises and equipment expenses as a result of the effective cost control,
reflecting from cost to income ratio in 1Q13 that dropped to 49.63% from 59.39%. On
the other hand, pressuring factors in this quarter were as follows. 1) Debt provision
increased 52.3%qoq and 228.7%yoy – more than expected, due to the qualitative
standard to increase the overall debt provision. At the same time, the quality of debtors
was still strong, evident from NPL to total gross loans at end-1Q13 that decreased to
4.22% from 4.32% at end-2012. Debt provision to NPL (LLR/NPL) enlarged to 76.6% at
end-1Q13 from 74.3% at end-2012. 2) Net interest income fell 4.9%qoq – lower
than expected. Net loan in 1Q13 grew 2.1%qoq and 19.1%yoy, which was still in line
with our target for FY2013 at 12%yoy, mainly from car hire-purchase loans that grew
following domestic car sales, particularly as a result of the government’s first car
scheme. For corporate and SME loans, not much growth has been seen. However, NIM
slumped disappointingly by 20bp to only 2.60% because of yield (low yield of new-car
loans) that declined beyond decreasing funding cost. Nevertheless, overall, the positive
factors could offset the negative factors and thus boost net profit growth notably in this
quarter.
- Maintain forecast; but likely have to be cut to reflect increasing provision
We maintain our earnings forecast for 2013-2014, but might have to cut it to B8bn after
knowing a clear policy about the debt provisioning from the net profit after noncontrolling
interest (NCI) of more than B7bn from TLife sale that will be booked in 2Q13,
which might make earnings growth in 2Q13 not as remarkable as we have previously
reported. However, we still have a positive outlook toward the decision on the debt
provision as it would make debt provision to NPL (LLR/NPL) ratio increase immediately to
91%, reflecting extremely stronger asset quality. Although Tier-1 capital would decrease
by 0.6% from 9.14% to 8.46%, as a result of the debt provisioning according to our
estimate, but it is still substantially higher than the BOT’s minimum standard. Moreover,
TCAP’s core business in 2013 would be more aggressive from 2012, with a strategy to
increase high-yield small SME loan customers that would enhance NIM of the bank. Even
though car hire-purchase loans might decelerate in 2H13, income generating potential
would be strong throughout the year as a result of car supplies (especially eco cars)
because a transfer of the current bookings has been delayed to the next 6-9 months.
-Buy. Share price might outperform the market following profit growth
We reiterate our “BUY” recommendation. 2013’s fair value is B49.14, implying more
than 15% upside from the current share price, with average dividend yield of 4-5% p.a.
(paying semiannually).