Thanachart Capital

Thanachart Capital Plc (TCAP)

Almost book entire income from TLife sale. Increase debt provision by B5bn
TCAP’s management has revealed the vision for the business outlook in 2013
regarding 3 main issues as follows. 1) The core business would still grow
vigorously in 2013, especially from subsidiaries: Thanachart Securities,
Thanachart Fund Management, and a life insurance business which would recognize
fee income from selling of life insurance products for the business partner,
Prudential Life, instead of recognizing consolidated financial statement like in the
past. For the banking business, the company would focus more on high yield loans,
especially small SMEs, as well as increase current accounts and savings accounts
(CASA) base from 35.4% to around 40% at end-2013, which will help boost NIM.
For car hire-purchase loans, deceleration might be seen in 2H13, but the income
generating efficiency would remain strong throughout 2013 because car supply
(eco cars in particular) still has a lag time in transferring of the cars booked since
late 2012 to customers for the next 3-6 months. 2) For the income from selling
of B18.9bn-worth TLife to Prudential Life, the bank has booked B17.4bn in
income from the sale since the beginning of May 2013; B940m will be booked in
June 2013 and the remaining B500m will be booked in the next year. The income
recognition will increase the bank’s tier-1 capital by 1-2% from 8.05% at end-1Q13
(including 2H13’s profit) and the cash flow from the income recognition will be
invested to seek short-term returns, which will be beneficial for yield and NIM of
TCAP as well. 3) The company will raise the debt provision by B5bn in order
to increase the coverage ratio to 100%, from only 75% at end-1Q13. Tier-1 capital
after the additional debt provision will remain high at 9-10%; combined with tier-2
capital of around 5-6%, total CAR will be very high at almost 14-15%.
- Cut 2013’s forecast to reflect higher debt provision
We revise down our earnings forecast for FY2013 but slightly revise up the forecast
for FY2014. Debt provision is projected to increase from B4.23bn or a credit cost of
only 50bp to B9.23bn or a credit cost of 109bp in 2013 before decreasing to a
normal level of 70bp in 2014. Moreover, we also increase an assumption for the fee
income growth in 2013-2014 respectively by 50% and 56.6% in order to reflect the
better-than-expected performance of subsidiaries. After the forecast revision, net
profit growth in 2013 is estimated at 133.6%yoy, but it will decrease by 38.2%yoy
in 2014 because there will not be an extraordinary profit like in 2013.
Nevertheless, norm profit in 2013-2014 would still grow continuously by 18.4%yoy
and 10.8%yoy, respectively.
- Reiterate BUY. Up 2013’s FV to B53.95. PBV rerated to 1.33x
We reiterate our “BUY” recommendation. 2013’s fair value after the forecast
revision is B53.95 from previously B49.14. PBV is rerated to 1.33x, which is closer
to the sector’s. The current share price still has 12% upside. Average dividend yield
is 3-4% p.a. (paid semiannually).