The Nation



Thanachart Capital

Some good signs in 2H14 HOLD

Thanachart Capital Plc (TCAP)

Like other small banks, there is nothing much to hope for TCAP in

2Q14 given the weak economy. A recovery, however, is foreseen

from non-leasing business since 2H14 onward.

- Profit to weaken slightly in 2Q14. Strict cost control imposed

We estimate TCAP's 2Q14 net profit at B1.30bn, dropping only 1.8%qoq but

plunging 68.1%yoy because in the same period last year there was a profit

from TLife sale. Earnings in 2Q14 would remain close to that of the prior

quarter. Fee income would decrease 3.8%qoq from decelerating loan

transaction, especially in the second quarter of every year which is a low

season with long holidays. Operating expense is projected to decline

1.8%qoq to a 10-quarter low as a result of strict cost controlling,

unnecessary expense reduction in particular. Cost to income ratio would

stay flat from 1Q14 at around 50%. 2Q14 net interest income would grow

3.7%qoq, against net loan growth that would contract 1.2%qoq and

0.9%yoy, mostly from car leasing loan. Overall, 1H14 net loan would

decrease 1.27percent from end-2013, very low when compared with our full-year

target for the growth of 6%yoy. However, NIM in 2Q14 would improve

significantly by 2.84% because of continuously decreasing funding cost

following the policy rate.

- Maintain forecast. Expect for recovery in 2H14

With the hope for the economic rebound in 2H14, we maintain our earnings

forecast even though 1H14 net profit would comprise only 46% of the full

year forecast. Loan is projected to grow at a faster pace in 2H14. Recently,

TCAP has granted a B12.5bn loan to Siam Piwat for the construction of

ICOMSIAM project, which is 1.6% of total loan forecast at end-2Q14, thus

helping alleviate concern about net loan growth in 2014.

- Share price already absorbs all factors. Attractive dividend yield

We recommend BUY for TCAP. The current share price has PBV of only 0.8x,

close to the 10-year average. 2014 fair value (0.89x PBV, GGM, 12.70%

long-term ROE forecast) is B38, implying over 12% upside in total.

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