THANI – Facing a crisis on repossession losses

Although making it through the worst, THANI is still facing a crisis in losses on repossessed cars and is seeing a contraction in loans and falling NIM. We cut our 2024F earnings by 5%, raising credit cost to factor in a fall in used truck prices in July and the current flooding. We keep THANI as Neutral with TP still at Bt2.

Raise 2024F credit cost. We raise our 2024F credit cost by 50 bps to 1.85% (-10 bps) to factor in a fall in used truck prices in 3Q24 after the used truck price index fell 7% MoM and 15% YoY in July plus the impact of flooding in northern Thailand. THANI continues to repossess a high number of vehicles at 140-150 units per month in July-August vs. an average of 120-130 units/month in 2023 and there is an oversupply of used trucks because of faster repossessions. The loss rate on repossessed vehicles is currently 25-30%, above the normal rate of 10-15%. In 2025, we expect credit cost to ease 15 bps to 1.7% as a result of slowing NPL inflow following a tighter credit policy and lower new loan extensions and a bottoming in used truck prices. We believe more launches of new trucks under the EURO5 standard will help support used truck prices as EURO5 trucks are priced 10% higher than EURO3 trucks.

Contracting loans, well behind target. THANI had loan drawdowns of Bt8.75bn in 1H24, falling 44% YoY and behind its 2024 target of Bt20bn (lower than the Bt24.65bn in 2023). This reflects both its tighter credit policy and weak demand for trucks. It is seeing slower demand from private sector construction, although government sector construction has started picking up in tandem with more rapid government budget disbursement. New truck sales fell 14% MoM and 43% YoY in July, translating to a 37% fall in 7M24. We maintain our 2024F loan growth at -8% and 2025F at 0%. THANI expects greater government budget disbursement to stimulate loan demand in 4Q24 and 2025.

Narrowing NIM with upside from greater possibility of policy rate cut. We see upside to NIM as policy rate cuts appear to be on the horizon, as suggested by a slightly more dovish tone in the latest MPC statement. A 25 bps cut in policy rate would give upside to NIM of 6 bps and 3% upside to 2025F earnings. Currently assuming no policy rate cut, we expect NIM to fall 38 bps in 2024 and 2 bps in 2025.

Cut 2024F. We cut our 2024F by 5% to factor in the upward revision of credit cost. We now expect 2024F earnings to fall 11% (-19% for EPS) and with a modest recovery of 4% in 2025F. In 3Q24, we expect earnings to rise slightly both QoQ (higher NII) and YoY (lower ECL).

Maintain Neutral with an unchanged TP. We maintain our Neutral rating with an unchanged TP to Bt2 (based on 0.85x PBV for 2025F).

Key risks: 1) Asset quality risk from an uneven economic recovery and the global economic slowdown, 2) higher losses on defaults from a fall in used truck prices,
3) downside risk on loan growth from falling truck sales and 4) ESG risk from market conduct.