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Thanachart Capital

Core business to slow down in 2014, but profit would grow from lower provision Hold

Thanachart Capital Plc (TCAP)

- Car leasing to slow down. Real drivers are SME and corporate loans

We hold a negative outlook toward TCAP's core business after the

analyst meeting. The bank kept its business goal in 2014 unchanged like

before the political crisis, under GDP growth forecast of 4% and

controllable liquidity risk despite the Fed's QE tapering. Accordingly, we

project the bank's business growth to be lower than the projection,

especially net loan growth which had been estimated at 6-7%yoy, up

from 4.7%yoy in 2013, depending mostly on corporate and SME loans

(32% of total loans). For the car leasing loan which accounts for 53% of

total loans, it is projected to stabilize or grow only slightly (because new

loan issuing was insignificantly higher than loan repaying during the

economic uptrend) since the bank has adopted a stricter measure in

issuing loan, especially for used cars, while domestic new car sales are

anticipated to weaken from last year. However, there would be

supporting factors from a good control of fixed cost and debt provision

that is projected to decrease in 2014. Credit cost is anticipated to slide

from 145bp to only 60bp, which is also lower than our estimate of 90bp,

because TCAP has made advance provision from extraordinary income

for car leasing NPL, and overall NPL is expected to decrease to only 4%

of total loans. Due to all these factors, the bank kept 2014 ROE forecast

at 13-15%, higher than our forecast of 11.77%.

- Maintain forecast. Downside limited due to very conservative assumption

We maintain our earnings forecast for 2014-2015. Normalized EPS is

projected to grow continuously by 8.6%yoy and 8.7%yoy, respectively.

As we use a more conservative assumption of debt provision growth

than TCAP's in making our forecast and project the ROE at only 11.8%

to reflect the current economic slowdown, the forecast is very unlikely to

be revised down in the near future.

- Hold for dividend. Not to outperform market in near future

We reiterate to hold TCAP for its dividend yield of 5-6% p.a. in the next

few years. 2014 fair value is B33.39 (GGM), at 0.78x PBV and under

long-term ROE forecast of 12%. Although the share price has undergone

correction until the PBV and PER are very low comparing to peers, it

would not outperform the market in the near future as still suppressed

by the economic deceleration.

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