Thanachart Capital

Thanachart Capital Plc

4Q14 earnings were 7% over our number

TCAP posted a 4Q14 profit of Bt1.36bn, down 12% YoY but up 13% QoQ. The result was 7% above our model and the Bloomberg consensus, attributable to lighter loan loss provisions than assumed (TCAP set LLPs of only Bt1.5bn for the quarter; we had assumed Bt2bn). Stripping out the item, pre-provision operating profit totaled Bt4.88bn, up by 13% YoY and 5% QoQ, as OPEX was well managed. FY14 earnings represent 102% of our old projection of Bt5bn. 

Results highlights

The loan portfolio at YE14 totaled Bt755bn, down by 2.1% QoQ and 4.5% YoY, in line with our estimate. Likewise, NIM was 2.83% in 4Q14, down 6 bps QoQ, due to the lending contraction (which was in the high-yield SME and retail categories). Net interest income was Bt6.8bn, down by 3% YoY and 2% QoQ. 4Q14 OPEX was Bt5bn, down by 11% YoY and 1% QoQ. Hence, the 4Q14 cost/income ratio dipped to 50.5% from 51.8% the previous quarter and 56.6% in 4Q13.

TCAP’s 4Q14 LLPs fell by 15% YoY and 17% QoQ to Bt1.5bn (we had assumed 4Q14 LLPs of Bt2bn). The NPLs/loans ratio was 4.1% at YE14, down from 4.66% at end-September, while the loan loss coverage ratio inched up to 86% from 82% three months earlier. Fee-based income totaled Bt2.6bn, up by 13% YoY and 21% QoQ, as TCAP’s capital market business rose significantly QoQ in 4Q14.

Outlook  

We anticipate that TCAP’s 1Q15 earnings will rise slightly QoQ on a lending recovery (especially for HP and SME loans), expanding fee income revenue and flattish LLPs.

What’s changed?

Our FY15 earnings forecast stands unchanged at Bt5.5bn, up 7% YoY. 

Recommendation

TCAP currently trades at a cheap YE15 PBV of only 0.7x, far below the Thai Bank sector mean of 1.4x. We believe that its low valuation and fair assumed dividend yields of 4.6% for FY14 and 4.9% for FY15 make the stock worthy as a dividend play. Our HOLD rating stands.