Thanachart Capital

Thanachart Capital Plc (TCAP) 

 

With improving asset quality, 4Q15 net profit was flat YoY and QoQ at Bt1.36bn, 6% below our forecast. 2015 net profit rose 6% to Bt5.12bn. TCAP saw a continued improvement in asset quality with a 15% QoQ decrease in NPLs, mainly from NPL sales. However, as tax loss carried forward from the liquidation of SCIB allowed subsidiary TBANK to pay no tax, TCAP took the opportunity to lift its LLR coverage to 116% from 109% at 3Q15 by keeping provision expense stable QoQ. Pre-provision profit fell 4% QoQ due to a QoQ reduction in fee income and dividend income. Its net interest income was stable QoQ underpinned by QoQ stable NIM and stagnant loans.   

2016 earnings recovery on improving asset quality. We expect profit to grow 15% in 2016F, mainly driven by lower provisions. TCAP plans to use the benefit from the tax loss to bring up LLR coverage and profitability. It aims at LLR coverage equivalent to the sector average of ~130% via both extra provisioning and proactive NPL resolution. We expect this to rise to 130% by YE2016 under our forecast of a 10% reduction in NPL amount in 2016 and a decline in credit cost to 1% for 2016F from 1.25% for 2015F. We expect no loan growth and a 5 bps rise in NIM for 2016.   

Keep TCAP BUY, but remove as top pick after a strong share price rally. We remove TCAP from the top pick list after its share price surged 16% over the past five weeks. However, we keep it as a Buy, as we expect it to outperform its sector in terms of asset quality in 2016, plus it will use the huge tax loss carried forward from the liquidation of its investment in SCIB to enhance its LLR coverage and ROE.