Thitikorn

Thitikorn Plc (TK)
Investment thesis
Although TK has downsized its loan growth target and increased its loan loss provisioning to cover for the weakening economic outlook, we believe both negative factors are already priced in. 3Q13 earnings should rise somewhat QoQ because the firm won’t book huge extra expenses for debt collection (as it did in 2Q13); its asset quality is now well-controlled. The share price has dived 50% since peaking at Bt21.5 on May 29. TK now looks cheap—an FY13 PER of 7.5x, which implies a generous dividend yield for this year of 7%. Our TRADING BUY rating stands.
Maintain FY13 loan growth forecast at 10%
Despite the nationwide 1.47% YoY drop in motorcycle sales in 7M13 to 1,275k units, TK said its HP loan portfolio grew 6% YoY, driven by business in the provinces. Ex-Bangkok demand now dominates business—about 65% of the loan portfolio is upcountry. Management expects this proportion to rise to 80% by YE14. TK guides for FY13 loan growth of above 10% (against 14% last year). We forecast its FY13 lending expansion of 12%.
Softer HoH OPEX outlook for 2H13
Because of the firm’s existing low NPLs/loans ratio of 4.2% and big loan loss coverage ratio of 145%, management expects 2H13 OPEX to decline moderately HoH. Note that TK’s 2Q13 OPEX jumped by 29% QoQ and 25% YoY to a new record of Bt538m, reflecting sharply higher expenses tied to debt collection and credit control. The firm guides that 3Q13 OPEX will normalize, as asset quality control has improved markedly.
2H13 NIM will be stable HoH
TK says that NIM will be sustained at about the 1H13 level in 2H13. The firm has increased its upcountry lending exposure in order to sustain business growth, while its funding cost management remains good. We forecast an FY13 NIM at 30.78% with a very low D/E ratio of 1.57x, which means that about 60% of its funding comprises equity (no financial costs tied to that chunk of the funding mix). About 80% of the firm’s borrowings comprise long-term debt. We expect TK to sustain its NIM at around 30% through this year with an average funding cost of 3.7%.
Expect 3Q13 earnings to rise 66% QoQ
Because we now assume softer QoQ OPEX (due to a diminished credit control expenses assumption), we forecast 3Q13 net earnings of Bt175m, up 66% QoQ but down 13% YoY. Our cost/income ratio expectation for the quarter is 51%, basically flat YoY, but down from 60% in 2Q13. We assume loan loss provisions of Bt260m in 3Q13, static QoQ but up 20% YoY.