COMPANY UPDATE

Thanachart Capital PLC

Wednesday, December 24, 2014

Undervalued with earnings back on track soon

BUY
Stock Data
Last close (Dec 23) (Bt)
12-m target price (Bt)
Upside (Downside) to TP (%)
Mkt cap (Btbn)
Mkt cap (US$mn)

32.25
44.00
36.43
41.21
1,253

Bloomberg code
Reuters code
Risk rating
Mkt cap (%) SET
Sector % SET
Shares issued (mn)
Par value (Bt)
12-m high / low (Bt)
Avg. daily 6m (US$mn)
Foreign limit / actual (%)
Free float (%)
Dividend policy (%)

TCAP TB
TCAP.BK
M
0.29
17.44
1,278
10
38.8 / 30
3.39
49 / 30
82.3
NA

Price Performance

Dec-14

Sep-14

Jun-14

Mar-14

Sep-13

Dec-13

Jun-13

Mar-13

Dec-12

Price (Bt)
60
50
40
30
20
10
0

TCAP Stock Price

TCAP Rel. to SET (rebased)

Source: SET, SCBS Investment Research

Share performance
Absolute
Relative to SET

1M
(4.4)
(0.8)

3M
(15.1)
(11.8)

12M
1.6
(12.0)

Source: SET, SCBS Investment Research

Kittima Sattayapan, CFA

Securities Fundamental
Investment Analyst
(66-2) 949-1003
kittima.sattayapan@scb.co.th

TCAP manages NPLs by selling them, which sliced NPL amount by 5% in

December. Asset quality will also be given a boost by the stabilization
of used car prices. Rate cuts now seem more likely than a hike, good
news for HP banks like TCAP. It is trading at an overly deep discount
that is overlooking the upcoming recovery. Buy with a TP of Bt44.
Proactive NPL resolution reconfirms view of easing provision. TCAP manages its
NPLs via selling them - in December, it sold three tranches valued at Bt1.78bn (0.2% of
total loans): Bt609mn in credit card & personal loans and Bt1.17bn in auto loans. This
cut the amount of its NPLs by 5%. TCAP expects asset quality to improve further as it
sells more NPLs and undertakes proactive debt restructuring, aided by steady
improvement in used car prices from the 20-30% drop from the first-car buyer scheme
over 2012-2013. These moves have reduced its provision needs and confirm our
expectation of easing credit cost, which we expect to come down to 0.89% in 4Q14F
from 0.93% in 3Q14 (0.96% in 2014F) and 0.9% in 2015F (vs. 0.8% normalized provisions).
Rate cuts more likely than hikes, lifting NIM upside. The probability of a hike in
interest rate is now less and in 4Q14 TCAP has gone back to raising S-T deposits
(current & savings) in order to ease cost of funds. In fact, with inflation tamed and the
economy needing stimulus, an interest rate cut now seems more likely, giving upside
to NIM. Interest rate cuts benefit banks that focus on auto loans like TCAP as the
duration of their liabilities is shorter than that of their assets. The threat to NIM from
rate hikes is now more distant and we expect NIM to be stable at 2.8% in 2015.
Poor loan growth. Loan growth continues negative at -1.8% QTD (-4.2% 11M14 YTD),
partly attributable to lower agricultural product prices. We cut our 2014F to -4% from
-1% but continue to expect a gradual recovery to 3% for 2015F. Due to the countrys
high household debt and high repayments of loans extended in 2012-2013, auto loan
growth is expected to be flat in 2015. To compensate for this, it will become more
active in the small SME segment (no larger than Bt10mn/account) in 2015 after
installation of a new business platform and IT system in 2014.
4Q14F preview: Earnings recovery starting. Although loan growth is expected to
remain negative in 4Q14, we expect NIM to improve. A pick-up in non interest income
and easing provisions are expected to lead to a 22% QoQ rise in 4Q14 earnings (but -5%
YoY). We expect a QoQ improvement in its net interest margin (NIM) in 4Q14, driven by
easing cost of funds. Outlook for non-interest income is better, mainly from fees
related to the capital market, i.e. brokerage income and asset management fees.
Provisions are expected to decline on improving asset quality. Opex is expected to
increase QoQ in line with business volume.
Deep discount. TCAP is undervalued at 0.7x 2015F PBV and 7x 2015F PER relative to our
conservative forecast. This reflects a deep discount to factor in poor loan growth
prospects and slow auto loans, though this has been easing as used car prices stabilize.
Better asset quality means lower provisions and this plus a gradual recovery in loan
growth will lead to earnings recovery from 4Q14 onward.
Forecasts and valuation
FY Dec
Pre-provision profit
Net profit
PPP/Sh
Core EPS
BVPS
DPS
PER
P/PPP
EPS growth
PBV
ROE
Dividend yields

Unit
(Btmn)
(Btmn)
(Bt)
(Bt)
(Bt)
(Bt)
(x)
(x)
(%)
(x)
(%)
(%)

2012
8,388
5,482
6.56
4.29
33.47
1.40
7.52
4.91
14.36
0.96
13.53
4.34

2013
20,742
9,231
16.23
7.22
37.07
1.60
4.46
1.99
68.38
0.87
20.48
4.96

2014F
12,519
5,227
9.80
4.09
40.11
1.22
7.88
3.29
(43.37)
0.80
10.60
3.77

2015F
12,815
5,774
10.03
4.52
43.59
1.13
7.14
3.22
10.46
0.74
10.80
3.50

2016F
13,146
6,164
10.29
4.82
47.29
1.21
6.69
3.13
6.75
0.68
10.62
3.74

Source: SCBS Investment Research

Tel. (662) 949-1000
Fax: (662) 949-1030
www.scbs.com

The information in this report has been obtained from sources believed to be reliable. However, its accuracy or completeness is not guaranteed. Any opinions expressed herein
reflect our judgment at this date and are subject to change without notice. This report is for information only. It is not to be construed as an offer, or solicitation of an offer to sell
or buy any securities. We accept no liability for any loss arising from the use of this document. We or our associates may have an interest in the companies mentioned therein.

Thanachart Capital PLC

Wednesday, December 24, 2014

Financial statement
Profit and Loss Statement (Btmn)
FY December 31
Interest & dividend income
Interest expense
Net interest income
Non-interest income
Non-interest expenses
Earnings before tax & provision
Tax
Equities & minority interest
Core pre-provision profit
Provision
Core net profit
Extra item
Net profit
EPS (Bt)
DPS (Bt)

Profit and Loss Statement (Btmn)

2012
49,999
25,765
24,234
13,175
22,571
14,838
2,463
3,987
8,388
2,906
5,482
0
5,482
4.29
1.40

2013
54,115
27,558
26,557
26,567
21,475
31,648
4,288
6,619
20,742
11,511
9,231
0
9,231
7.22
1.60

2014F
52,668
24,870
27,798
11,857
20,287
19,368
2,415
4,434
12,519
7,291
5,227
0
5,227
4.09
1.22

2015F
52,494
24,882
27,612
13,070
20,261
20,421
2,676
4,930
12,815
7,041
5,774
0
5,774
4.52
1.13

2016F
54,560
26,444
28,116
14,184
21,021
21,279
2,859
5,274
13,146
6,982
6,164
0
6,164
4.82
1.21

3Q13
13,627
6,950
6,677
3,632
5,222
5,086
682
1,057
3,348
1,687
1,661
0
1,661
1.30
-

4Q13
14,002
6,997
7,005
3,846
5,302
5,548
707
1,259
3,582
2,043
1,539
0
1,539
1.20
-

1Q14
13,573
6,801
6,772
3,182
5,023
4,932
671
1,282
2,980
1,657
1,323
0
1,323
1.04
-

2Q14
13,252
6,212
7,040
3,036
4,809
5,267
677
1,196
3,393
2,158
1,235
0
1,235
0.97
-

3Q14
13,177
6,285
6,893
2,959
5,014
4,838
553
1,292
2,993
1,791
1,202
0
1,202
0.94
-

Balance Sheet (Btmn)

Balance Sheet (Btmn)

FY December 31
Cash
Interbank assets
Investments
Gross loans
Accrued interest receivable
Loan loss reserve
Net loans
Total assets
Deposits
Interbank liabilities
Borrowings
Total liabilities
Minority interest
Paid-up capital
Total Equities
BVPS (Bt)

FY December 31
Interest & dividend income
Interest expense
Net interest income
Non-interest income
Non-interest expenses
Earnings before tax & provision
Tax
Equities & minority interest
Core pre-provision profit
Provision
Core net profit
Extra item
Net profit
EPS (Bt)

2012
2013
2014F
2015F
2016F
15,181
17,940
18,651
19,956
21,344
72,174
70,215
56,172
64,598
71,057
152,438
150,076
150,076
150,076
150,076
755,330 791,175 759,528 782,313 821,429
1,072
1,015
1,015
1,015
1,015
24,891
30,773
36,165
41,250
46,179
731,512 761,417 724,378 742,078 776,265
1,024,102 1,052,770 1,002,399 1,029,831 1,071,865
693,421
715,931
656,938
674,676
706,386
87,972
81,082
81,082
81,082
81,082
89,506
109,290
109,290
109,290
109,290
940,312 957,331 898,338 916,076 947,785
41,018
48,071
52,805
58,050
63,654
12,778
12,778
12,778
12,778
12,778
42,772
47,369
51,256
55,705
60,426
33.47
37.07
40.11
43.59
47.29

Key Financial Ratios and Financial Ratios

2012
Growth
YoY loan growth
YoY fee & insurance income growth
Profitability
Yield on earn'g assets (%)
Cost on int-bear'g liab (%)
Spread (%)
Net interest margin(%)
ROE (%)
Asset Quality
NPLs/Total Loans(%)
LLR/NPLs(%)
Provision expense/Total loans (%)
Liquidity
Loans/Deposits & borrowings (%)
Efficiency
Cost to income ratio (%)
Capital Fund
Capital adequacy ratio(%)
Tier-1(%)
Tier-2(%)

2014F

2015F

4Q13
17,940
70,215
150,076
791,175
1,015
30,773
761,417
1,052,770
715,931
81,082
109,290
957,331
48,071
12,778
47,369
37.07

(4.00)
(18.30)

3.00
8.75

5.00
10.63

5.45
3.16
2.29
2.64
13.53

5.43
3.10
2.33
2.67
20.48

5.33
2.84
2.49
2.81
10.60

5.35
2.91
2.44
2.81
10.80

5.35
3.00
2.35
2.76
10.62

4.54
72.55
0.38

4.74
81.97
1.45

4.60
103.62
0.96

4.60
114.75
0.90

4.60
122.34
0.85

96.48

95.87

99.13

99.79

100.71

55.47
14.30
9.07
5.24

51.16
15.56
10.24
5.31

49.80
16.41
11.22
5.19

3Q13
16.95
(49.08)
5.52
3.15
2.70
52.40
4.74
82.62
0.86

2016F

4.75
13.28

12.07
7.50
4.57

3Q13
12,606
54,770
150,103
787,712
934
30,848
757,798
1,027,292
702,334
81,458
102,804
934,839
46,699
12,778
45,755
35.81

1Q14
13,246
49,949
154,704
790,604
864
31,163
760,305
1,031,317
676,280
95,647
112,078
932,807
49,578
12,778
48,932
38.29

2Q14
12,950
64,183
140,765
783,236
853
31,123
752,966
1,021,547
712,920
64,408
99,036
922,442
49,942
12,778
49,162
38.47

3Q14
12,155
56,251
145,473
771,924
911
30,402
742,434
1,012,132
692,546
54,038
116,392
911,074
51,305
12,778
49,752
38.94

Financial Ratios
2013

18.56
47.42

63.58

FY December 31
Cash
Interbank assets
Investments
Gross loans
Accrued interest receivable
Loan loss reserve
Net loans
Total assets
Deposits
Interbank liabilities
Borrowings
Total liabilities
Minority interest
Paid-up capital
Total Equities
BVPS (Bt)

YoY loan growth

YoY fee & insurance income growth
Yield on earn'g assets (%)
Cost on int-bear'g liab (%)
Net interest margin(%)
Cost to income ratio (%)
NPLs/Total Loans(%)
LLR/NPLs(%)
Provision expense/Total loans (%)

4Q13
12.56
(67.38)
5.59
3.12
2.80
55.47
4.74
81.97
1.03

1Q14
4.67
(75.84)
5.41
3.04
2.70
53.12
4.85
81.24
0.84

2Q14
1.52
(28.47)
5.35
2.82
2.84
50.61
4.90
81.04
1.10

3Q14
(2.08)
(62.91)
5.37
2.89
2.81
52.11
4.85
81.14
0.93

PBV Band Chart

PBV Band TCAP

Price (Bt)
80

1.6x

70

49.70
17.03
12.04
4.99

60

1.3x

50

1.1x

40

0.8x

30

0.6x

20
0.3x

10
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15

Cumulative Change in SET

index
20.0%

Cumulative Change in Foreign

Ownership
1.0%

Cumulative SET (LHS)

Cumulative TCAP (RHS)

Dec-14

Nov-14

Oct-14

Sep-14

-2.5%
Aug-14

-2.0%

-15.0%
Jul-14

-1.5%

-10.0%
Jun-14

-1.0%

-5.0%

May-14

-0.5%

0.0%

Apr-14

0.0%

5.0%

Mar-14

0.5%

10.0%

Feb-14

15.0%

Jan-14

NA

12 Month cumulative chg in foreign ownership versus cumulative

chg in SET index

Dec-13

12-Month Cumulative directors trade

Source: SET, SCBS Investment Research

Thanachart Capital PLC

Wednesday, December 24, 2014

Figure 1: Valuation summary (Closing price as of Dec 23, 2014)

Rating
BAY
BBL
KBANK
KKP
KTB
LHBANK
TCAP
TISCO
TMB
Average

Sell
Buy
Buy
Buy
Buy
Sell
Buy
Buy
Sell

Price
Target
ETR
(Bt/Sh) (Bt/Sh) (%)
45.00
33.0
(25.2)
196.50
255.0
33.4
234.00
275.0
19.2
39.75
46.0
20.0
23.00
27.0
21.0
2.04
1.3
(34.4)
32.25
44.0
40.2
43.75
55.0
30.3
3.00
3.0
1.9

13A
23.0
10.4
13.6
7.5
9.5
29.0
4.5
8.2
22.8
14.1

P/E (x)
14F
20.0
10.3
12.0
11.6
10.5
21.5
7.9
8.5
15.5
12.9

15F
16.7
9.3
11.0
9.0
9.1
19.7
7.1
7.3
13.3
11.2

EPS growth (%)

13A
14F
15F
(19)
15
20
9
1
11
17
13
9
29
(35)
29
45
(9)
14
23
35
9
68
(43)
10
4
(3)
17
354
47
17
22
4
13

P/BV (x)
13A
14F
2.3
2.1
1.3
1.1
2.6
2.2
1.0
0.9
1.6
1.4
1.7
1.7
0.9
0.8
1.5
1.4
2.1
1.9
1.7
1.6

15F
1.9
1.1
1.9
0.9
1.3
1.6
0.7
1.2
1.7
1.4

ROE (%)
13A
14F
10
11
13
12
20
20
13
8
17
14
6
8
20
11
21
17
10
13
15
13

15F
12
12
18
10
15
8
11
18
14
14

Div. Yield (%)

13A
14F
15F
1.8
1.5
1.8
3.4
3.6
4.0
1.5
1.7
2.1
6.8
4.3
5.6
3.8
3.6
4.2
2.9
1.9
2.0
5.0
3.8
3.5
4.6
4.6
4.8
1.3
1.9
2.3
3.4
3.1
3.4

Source: SCBS Investment Research

Disclaimer
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TNPC, TOPP, TPA, TPP, TR, TTI, TVD, TVI, TWZ, UBIS, UEC, UOBKH, UPF, UWC, VARO, VTE, WAVE, WG, WIN, WORK
Corporate Governance Report disclaimer
The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a
general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not base on inside information.
The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. SCB Securities Company Limited does not conform nor certify the accuracy of such survey result.