Ratchthani Leasing

Ratchthani Leasing Plc (THANI) 

 

Investment highlights

 

- Dominant player in the used commercial truck market. THANI provides a variety of automobile hire-purchase loans for both new and used vehicles. Its large proportion of hire-purchase loans for used commercial trucks results in a higher loan yield compared to loans for new trucks. There are few players that offer used truck HP loans due to the high level of expertise, experience, and strong back-office operations required. THANI is also offering HP loans for other vehicle niche vehicle markets such as super cars and big bikes, both of which have inherently lower risk compared to used trucks and good grow potential. Thus, THANI’s performance is directly related to the economy, i.e. private investment. 

- Loan growth to bounce strongly. THANI enjoyed an investment boom in 2013, as reflected by significant loan growth of 30.6%. Going forward, expectations of an economic improvement results in a positive HP demand outlook for both used and new commercial trucks. We estimate loan growth of 10.1% in 2016E and 7.2% 2017E. 

- Funding costs to decline from debenture refinancing. Debentures account for 60% of THANI’s interest-bearing liabilities. THANI issued debentures worth Bt5.5bn that will mature next year at an initial coupon rate of 5%. The company is in the process of refinancing the debenture series, which will cause its overall cost of funds to decline from 4.30% to 4.14% 2017E. NIM should improve from 4.8% this year to 5.16% in 2017E. As a result, we estimate a strong two-year earnings CAGR (2016-17E) of 16%. 

- NPL ratio to improve and lower credit cost help bottom line. We expect the 

NPL ratio to improve from 5.0% this year to 4.7% in 2017E due to a better investment especially for used trucks. With adequate general reserve set aside for doubtful accounts, THANI’s credit cost should not be as high as 1.55% in 2014. We therefore expect the average credit cost to decline from the 2014 level to 1.12% in 2017E. The lower credit cost is another source for boosting strong net profit growth.  

Valuation 

- Outperform rating and a 2016 target price of Bt3.70. We derive a target price for THANI of Bt3.70 based a PBV of 1.5x derived from the Gordon Growth model.  

- At the current level, THANI is trading at a one-year forward PER of 7.5x and PBV of 1.4x. In terms of trading band, the stock is trading -1SD its five-year historical mean both in terms of PBV and PER. THANI is our top vehicle hire-purchase play due to its cheap valuation, high dividend yield of 6%, and direct impact from positive investment sentiment.