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Thanachart Capital

Confirm no effect on 2013's profit after selling TLife, bullish about BUY Bancassurance income

Thanachart Capital Plc (TCAP)

Very small effect on 2013's profit. Accelerate Bancassurance business for alternative income

TCAP confirmed at the analyst meeting yesterday (7 November) that the effect from selling of TLife on 2013's profit outlook would be very insignificant because the business could generate profit of around B1.2bn/year on average for TCAP or 11% of 2012's net profit forecast of the bank (net after NCI or non controlling interest). The strategy of TCAP is bringing money of more than B13bn from the business sale (net after tax) to invest in the first 1-2 year with expected returns on investment (ROI) of 5-6% on average or around B500-600m. For Bancassurance, TCAP emphasized that there would be positive synergy from the new partner, Prudential Life Assurance, a UK life

insurance company with the largest asset size. Prudential Life has networks in more than 12 countries in Asia (including Thailand) and has been doing Bancassurance business through its 79 bank networks. TCAP is very bullish about experience and expertise of the partner (evidenced by its current market share of first-year premium income at the 7th largest and total premium income at the 10th largest in the country), as well as its strength in diversified products such as endowment and whole life products which are different from TLife's main product of credit life together with car insurance.TCAP would focus on selling life insurance products through Bancassurance that has exclusive contract with Prudential Life via more than 636 branch

networks nationwide. Accordingly, the worry about a decrease of profit from the core business in 2013 has substantially been alleviated.

No worry about sluggish auto hire-purchase business.

Penetrating used car and SME markets

A deceleration of auto hire-purchase loan business in 2013 is another major concern of TCAP. However, the bank still confirmed aggressive growth in interest income in 2013 despite softening growth in this group of loan, because loans issued in 2012 have still not fully generated income for the bank. Moreover, for TCAP's strategy in the next 2-3 years, the bank will focus on used car loans which are still of high demand (in spite of deceleration in 2012 as a result of the government's first car scheme) as well as penetrating the market of small SME which gives higher yield than new car. Accordingly, we foresee benefit on NIM of the bank in the long run. For the bank's policy of increasing debt provision in 2013, we believe the credit cost forecast of 50bp compared with 39bp in 2012 would be sufficient.

Reiterate BUY. Top pick of mid-cap banks

We reiterate our BUY recommendation for TCAP and select it as a top pick of the mid-cap banks. 2013's fair value after revision is B49.14/share. We recommend buying on price weakness from the bank's aggressive net profit growth outlook in 2013 and receding worry about capital increase.

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