Introduction to Thanachart Capital

Thanachart Capital Public Company Limited (TCAP), a leading financial services company, operates a diverse range of businesses including hire purchase, non-life and life insurance, securities brokerage, asset-based financing, non-performing asset management, and investment. As the parent company of Thanachart Group, TCAP plays a pivotal role in Thailand’s financial ecosystem.

The company’s current stock price stands at Bt49.75, with a target price of Bt52.00, offering a potential upside of 4.5%. The recommendation remains a Hold, reflecting cautious optimism amidst challenges in the financial landscape.

4Q24 Financial Results Preview

TCAP is expected to post a net profit of Bt1,558 million for the fourth quarter of 2024, representing a year-over-year increase of 9%, but a quarter-on-quarter decline of 4%. The decline is attributed to lower profit share and higher insurance claims. Despite these challenges, credit costs are forecasted to decline quarter-on-quarter due to government stimulus measures and efforts to clean up loan portfolios.

Key financial metrics for 4Q24 include:

• Total gross loans: Bt65,501 million (down 2.5% YoY, up 0.8% QoQ)
• Net interest income: Bt775 million (down 7.6% YoY, up 0.2% QoQ)
• Non-interest income: Bt4,303 million (up 2.8% YoY, down 5.1% QoQ)
• Loan loss provisions: Bt329 million (down 9.1% YoY, down 17.2% QoQ)
• Net income: Bt1,558 million (up 8.6% YoY, down 3.8% QoQ)
• NPL ratio: 2.8%
• Net interest margin (NIM): 3.4%
• Return on Equity (ROE): 8.6%

The uneven recovery in the used truck price index continues to impact the loan portfolio, particularly for its subsidiary Ratchthani Leasing (THANI), which has significant exposure to truck hire-purchase loans.

Non-Interest Income and Credit Costs

Decline in Non-Interest Income

Non-interest income (non-II), which constituted 85% of TCAP’s total revenue in 3Q24, is expected to grow 3% YoY but decline 5% QoQ in 4Q24. Insurance income, the largest contributor at 62% of non-II in 3Q24, is projected to increase 5% YoY but decrease 2% QoQ. However, a smaller share of profit from investment in associates and higher insurance claims are anticipated to put downward pressure on non-II.

Improvement in Credit Costs

Credit costs, which spiked by 90 basis points to 243 basis points in 3Q24, are expected to improve in 4Q24, declining to 202 basis points. This improvement is attributed to the clean-up of loan portfolios under THANI and government stimulus measures. The NPL ratio is also expected to decrease to 2.8% in 4Q24, signifying better asset quality.

Key Financial Forecasts (2024-2026)

UOB Kay Hian has revised TCAP’s earnings forecasts for 2024-2026 as follows:

• 2024F: Bt6,867 million (-1.1% revision)
• 2025F: Bt7,346 million (+0.1% revision)
• 2026F: Bt7,935 million (-1.0% revision)

The revisions reflect the uneven recovery in the used truck price index and ongoing challenges in the financial sector.

Valuation and Recommendation

TCAP’s target price of Bt52.00 is derived using the Gordon Growth Model, with a cost of equity of 11.5% and a long-term growth rate of 2%. This implies a 0.72x 2025F P/B, nearly +0.5SD to its historical five-year P/B mean. The stock remains a Hold recommendation.

Environmental, Social, and Governance (ESG) Initiatives

Environmental Efforts

TCAP emphasizes energy and greenhouse gas management by campaigning for electricity conservation and assigning personnel to oversee efficient use of electrical equipment.

Social Responsibility

The company prioritizes cybersecurity, personal data protection, and respect for human rights and diversity. Stakeholders are treated with fairness and equality.

Governance Practices

TCAP upholds strong corporate governance standards, including risk management, internal audits, and anti-corruption measures. The Board ensures robust regulatory compliance and managerial oversight.

Subsidiaries’ Performance in 3Q24

Key subsidiaries under TCAP demonstrated mixed financial performance in 3Q24:

• Ratchthani Leasing (THANI): Net profit of Bt80 million (down from Bt255 million in 2Q24)
• Thanachart Insurance (TNI): Net profit of Bt188 million (down from Bt263 million in 2Q24)
• Thanachart Securities (TNS): Net profit of Bt61 million (up from Bt29 million in 2Q24)
• TS Asset Management (TS AMC): Net loss of Bt9 million
• MAX AMC: Net loss of Bt3 million
• NFS AMC: Net loss of Bt12 million
• Thanachart Life Assurance (T LIFE): Net loss of Bt54 million

Conclusion

Thanachart Capital continues to navigate a challenging financial landscape with a cautious yet steady approach. While certain segments face headwinds, the company’s focus on ESG initiatives, asset quality improvement, and strategic management offers a balanced outlook. Investors are advised to maintain a Hold position, keeping an eye on macroeconomic developments and key financial metrics in the coming quarters.