Thitikorn

3Q14 profit was 38% over our estimate

TK reported 3Q14 earnings of Bt42m, a plunge of 36% YoY but up 1,027% QoQ. The result was 38% over our estimate and the Bloomberg consensus, attributable to light loan loss provisions, which declined by 20% QoQ and 5% YoY to Bt292m and were 15% below our assumption. Pre-provisioning operating profit fell by 15% QoQ and 12% YoY to Bt129m. TK’s 9M14 earnings plunged 69% YoY to Bt117m, which represents 69% of our FY14 projection of Bt170m. 

Results highlights

Net lending dropped by 5% QoQ and 11% YoY—deeper than our estimate. We had assumed that 3Q14 net lending dipped just 2% QoQ. The slippage was attributable to TK’s tougher upcountry lending policy. Note that in addition to the economic slowdown (the government’s failure to honor its rice pledging scheme obligations hit the provincial economy very hard), lending was squeezed by political unrest, 1Q-2Q14. NIM slimmed back by 36 bps YoY to 30.2% during the quarter (but was up from 29.5% in 2Q14).

TK set loan loss provisions of Bt292m for 3Q14, down by 5% YoY and 20% QoQ. Its 3Q14 LLPs were 15% lower than our assumption. The NPLs/loans ratio declined to 4.6% at end-September from 5.3% three months earlier. The loan loss coverage ratio jumped to 131% from 118% at end-June. 

Outlook

We expect TK to report modest QoQ earnings growth for 4Q14, led by lighter LLP-setting.

What’s changed?

Our profit forecasts stand unchanged at Bt170m for FY14 and Bt280m for FY15.

Recommendation 

We maintain a SELL rating on TK. The HP vendor is likely to deliver poor core earnings, 4Q14 through 1H15. Its projected dividend yields are unattractive at 1.8% for FY14 and 2.9% for FY15.