Thitikorn

Thitikorn Plc (TK) 

4Q14 profit was 48% over our estimate

TK reported 4Q14 earnings of Bt78m, up by 54% YoY and 84% QoQ. The result was 48% above our estimate and the Bloomberg consensus, attributable to lighter OPEX, which declined by 10% QoQ and 12% YoY to Bt467m and was 16% below our assumption. Pre-provisioning operating profit jumped 30% QoQ to Bt168m. TK’s FY14 earnings dived 54% YoY to Bt195m; which represents 114% of our earlier FY14 projection of Bt170m. 

Results highlights

Net lending dropped by 5% QoQ and 14% YoY—deeper than our estimate. We had assumed that 4Q14 net lending dipped just 3% QoQ. The slippage was attributable to TK’s tougher upcountry lending policy. Note that in addition to the economic slowdown (the govt’s failure to honor its rice pledging scheme obligations hit the provincial economy hard in 1H14), lending was squeezed by fallout from political unrest, 1Q-3Q14. NIM rose by 54 bps YoY to 31.3% during the quarter, as funding costs declined faster than lending rates.

TK set loan loss provisions of Bt289m for 4Q14, down by 5% YoY and 1% QoQ. Its 4Q14 LLPs were in line with our assumption. The NPLs/loans ratio inched up to 5% from 4.6% at end-September, due to a QoQ lending contraction. Also, the loan loss coverage ratio dipped to 129% at YE14 from 131% three month earlier.

Outlook

TK should report QoQ earnings growth for 1Q15 onward, led by lighter LLP-setting and lower OPEX (chiefly, lower debt collection costs).

What’s changed?

We have raised our FY15 earnings projection by 36% to Bt380m to factor in lower LLP-setting this year. Our FY15 loan loss provisioning assumption has declined from 1.35bn to Bt1.2bn. TK plans to apply to the Bank of Thailand for a nano-finance license in 2Q15. We haven’t factored in the possible upside from this venture into our model. 

Recommendation 

Because of our earnings forecast upgrade, we have raised our target price from Bt9 to Bt14, pegged to a justified PBV of 1.65x (average ROE [FY15-16] of 10%, industry growth rate of 5% and Ke of 8%). As such, we have upgraded our TK rating from SELL to TRADING BUY.