Thanachart Capital

Thanachart Capital Plc (TCAP)

Like other small banks, there is nothing much to hope for TCAP in
2Q14 given the weak economy. A recovery, however, is foreseen
from non-leasing business since 2H14 onward.

- Profit to weaken slightly in 2Q14. Strict cost control imposed
We estimate TCAP’s 2Q14 net profit at B1.30bn, dropping only 1.8%qoq but
plunging 68.1%yoy because in the same period last year there was a profit
from TLife sale. Earnings in 2Q14 would remain close to that of the prior
quarter. Fee income would decrease 3.8%qoq from decelerating loan
transaction, especially in the second quarter of every year which is a low
season with long holidays. Operating expense is projected to decline
1.8%qoq to a 10-quarter low as a result of strict cost controlling,
unnecessary expense reduction in particular. Cost to income ratio would
stay flat from 1Q14 at around 50%. 2Q14 net interest income would grow
3.7%qoq, against net loan growth that would contract 1.2%qoq and
0.9%yoy, mostly from car leasing loan. Overall, 1H14 net loan would
decrease 1.27% from end-2013, very low when compared with our full-year
target for the growth of 6%yoy. However, NIM in 2Q14 would improve
significantly by 2.84% because of continuously decreasing funding cost
following the policy rate.

- Maintain forecast. Expect for recovery in 2H14
With the hope for the economic rebound in 2H14, we maintain our earnings
forecast even though 1H14 net profit would comprise only 46% of the full
year forecast. Loan is projected to grow at a faster pace in 2H14. Recently,
TCAP has granted a B12.5bn loan to Siam Piwat for the construction of
ICOMSIAM project, which is 1.6% of total loan forecast at end-2Q14, thus
helping alleviate concern about net loan growth in 2014.

- Share price already absorbs all factors. Attractive dividend yield
We recommend BUY for TCAP. The current share price has PBV of only 0.8x,
close to the 10-year average. 2014 fair value (0.89x PBV, GGM, 12.70%
long-term ROE forecast) is B38, implying over 12% upside in total.