Thanachart Capital

Thanachart Capital Plc (TCAP)

3Q13 profit contracts as predicted. Core business stays flat.
TCAP's net profit was reported at B1.66bn as projected, contracting by 59.3%qoq but
growing by 30.3%yoy, mainly due to extraordinary items. As only B4.7bn extraordinary
income from TLife investment sale was recognized in 2Q13, B200m dividend income
from Vayupak fund booked in 3Q13 could not negate the decrease in extraordinary
income. However, 3Q13 extraordinary expense decreased, as B5bn additional debt
provision was recognized in 2Q13, whereas 3Q13 provision is close to usual at the
credit cost of 86bp. Core business stayed flat in 3Q13 as projected, as follows: 1)
3Q13 net interest income grew 1.7%qoq and 15.1% yoy - as projected,
contrast to net loan that shrank slightly by 0.1%qoq but grew 12.1%yoy, weak growth
compared to the previous seven quarters. 9M13 net loan growth was only 4.3% from
end-2012, low compared to FY2013 loan growth targeted at 8%yoy. 3Q13 net loan
growth came mostly from new car leasing loan, but not as aggressively as 2Q13, as
projected. Retail loan grew continuously. SME and corporate loan did not grow due to
high debt repayment. 3Q13 NIM stayed unchanged qoq at 2.70%. Yield from auto hirepurchase
loans stayed unchanged due to lower competition. TCAP had excess liquidity
from selling TLife at B18bn for short-term investment. Funding cost rose slightly, as
TCAP did not heighten deposit gathering due to sluggish loan. 2) 3Q13 operating
expense dropped by 4.6%qoq and 2.8%yoy - better than expected, due to
effective cost reduction policy, especially a decrease in employee expenses. Cost to
income ratio rose from 24.82% to 49.46%, as 2Q13 income (including extraordinary
items) rose greatly. 3Q13 earnings result fell, as fee income decreased by 9%qoq (but
rising 24.8%yoy), worse than expected, in line with decline in loans. Moreover, 3Q13
brokerage fee income from subsidiary's securities business weakened, as daily trading
volume fell. Fee income from bancassurance transaction with Prudential Life grew
nicely, but not boosting much growth due to its small profit base.
- Maintain FY2013-2014 earnings forecast. 4Q13 earnings to stay flat qoq
We maintain our FY2013-2014 earnings forecast, projecting normalized EPS in 2013-
2014 to grow continuously by 16.1%yoy and 9.9%yoy, respectively. Pressure from
auto hire purchase loans that tend to weaken in the rest of the year has already been
forecast. However, growth in other loans would not be strong, as reflected from 9M13
growth. Fee income growth has also weakened in 3Q13. If there is no improvement in
the core business in 4Q13, FY2013 earnings result would be lower than projected.
- "HOLD" for dividend. Share price reflects negative factors but upside limited
We reiterate "HOLD" to receive average dividend yield of 5-6% p.a. in the next few
years. TCAP's FY2013 fair value is B35.72 (0.90x PVB, 12.7% long-term ROE). Though
TCAP has undergone correction, making PBV and PER very low in the sector, it lacks
supporting factors, and it has only 4% upside.