Thanachart Capital

Rather focus on adjustment than growth HOLD

Thanachart Capital Plc (TCAP)

- NPL, bad debt provision pressure already bottoms out

Overall, an asset quality likely has already bottomed out. Positive signs

have been seen; pressure from a downward transition of debts that have

gone unpaid more than 30 days has relieved, while NPLs from used-car

hire-purchase have decreased substantially since used car prices started to

stabilize after falling over 20-30% previously (whereas hire-purchase loans

for new cars and cars under the government’s first-car scheme barely

caused NPLs). In addition, bad debt provisioning will also lower since 4Q14

until 2015 following decreasing NPLs and lower loss from repossessed car

sales. Credit cost is projected to decrease from 91bp in 9M14 to 80bp in

4Q14, in line with TCAP’s credit cost target of 85bp for 2014.

- Boost small SME loans to compensate for shrinking HP loans in 2015

We maintain our FY2014-2015 earnings forecast, estimating TCAP's net

profit to contract 41.2%yoy in 2014 (since B4.07bn net profit after tax and

NCI from TLife sales was booked in 2013) but rally 11.1%yoy in 2015.

Though the core business (car hire-purchase) is not predicted to rebound

before 2H15, TCAP's 4Q14 earnings are projected to continue rebounding in

4Q14 and 2015 thanks to the bank's policies on cost control and asset

quality, as well as its strategy of boosting small SME loans to compensate

for shrinking car hire-purchase loans.

- Strong point: high dividend yield

We recommend HOLD for the average dividend yield of 5-6%p.a. (paid

semiannually). With PBV of 0.8x, close to the ten-year average level, its

share price has a very limited downside. The fair value is B37.84 in 2014

and B40.96 in 2015 (GGM, 0.89x PBV, 12.70% long-term ROE, and 7% long

term growth