Thanachart Capital

Thanachart Capital Plc (TCAP)

- Focus on fee income and strict cost control as 2014 loan growth target not remarkable
TCAP’s management declared its vision for the business outlook in 2014. Loan growth
is projected at only 1.5 fold of the GDP or 6-7%yoy, not remarkable and decelerating
from 10%yoy targeted for FY2013 (9M13 loans grew only 4.3% from end-2012, mostly
because of repayment of corporate and SME debts, while car leasing loans grew more
than 10% from end-2012). Car leasing loans, which comprise 55% of total loans, tend
to show slower growth in 2013 because new car inventories need time to release,
consumers’ purchasing power has declined, and the bank has adopted a stricter loan
issuance policy to reduce new NPL. Corporate loans, on the other hand, would show
strong recovery from 2013 (depending on the government’s mega investment projects
and water management project), as well as SME loans that will use the bank’s 622
branches nationwide to reach clients. At the same time, the government would boost
fee income growth to compensate decreasing net interest income. Fee income from
bancassurance has also shown strong growth by month after TLife sale in April, thanks
to the strength of Prudential Life in issuing both saving and protection life insurance
products apart from car leasing loan related products, as well as improvement of sale
agents for cross selling products. All these factors would help boost total income growth
in 2014. In terms of NIM, although tight liquidity in the system might affect NIM, the
bank has a plan to increase current and savings account CASA deposits (from only
30.5% of total deposits and loans, which is lower than the sector’s average of above
40%) to relief the impact. Moreover, TCAP has been strict in cost control, reflecting
from cost to income ratio that has been declining in the past two years to only 51% in
9M13 (profit from TLife sale excluded) from 61% in 9M12. If TCAP can meet its target,
earnings in 2014 would grow continuously from 2013.
- NPL stays flat. High provisioning might not be needed in 2014
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, under an
assumption for net loan growth of 8%yoy, NIM of 2.89%, close to 9M13’s, and cost to
income ratio of 50%. At the same time, NPL tends to improve continuously and
normalize in 1H14. Coverage ratio (LLR/NPL) at end-9M13 stood high at 83.3% after
high debt provisioning in 2Q13 (by a profit from TLife sale), though lower than the
sector’s average of over 100%. However, as most of portfolio are car leasing loans
which have low historical loss, high provisioning might not be necessary in 2014,
compared with FY2013 target at 75-80bp.
- Hold to receive dividend. Already absorbs negative factor, but upside still limited
We reiterate "HOLD" to receive average dividend yield of 5-6% p.a. in the next few
years. FY2014 fair value is B39.26 (0.90x PVB, 12.7% long-term ROE forecast).
Though TCAP has undergone