THANI – 3Q24: Big miss on ECL & opex; downgrade

3Q24: Big miss on ECL and opex. THANI reported 3Q24 earnings of Bt80mn (-69% QoQ, -68% YoY), 70% below our forecast due to higher ECL and opex than expected.

3Q24 highlights:

1) Asset quality: NPLs rose 8% QoQ and 23% QoQ if write-offs are added back (vs. +18% QoQ in 2Q24), suggesting a rise in NPL inflow. NPL ratio rose 39 bps QoQ to 3.8%. Credit cost rose 118 bps QoQ to 3.21%, substantially above our estimate. LLR coverage was stable at 93% in 3Q24. We raise our 2024F credit cost by 35 bps to 2.2% (+25 bps), well above its original guidance of 1.3-1.4%.

2) Loan growth: -3% QoQ, -11% YoY, -9% YTD. We cut our 2024F loan growth assumption to -10% from -8%.

3) NIM: +9 bps QoQ (-22 bps YoY) due to a 6 bps QoQ rise (-6 bps YoY) in loan yield with an 8 bps QoQ (+31 bps YoY) rise in cost of funds.

4) Non-NII: -10% QoQ (-14% YoY).

5) Cost to income ratio: +920 bps QoQ (+668 bps YoY) to 30.95% on a rise in opex (+37% QoQ, +10% YoY).

Cut earnings forecast. We cut our earnings forecast by 20% for each of 2024 and 2025 to factor in our upward revision of credit cost. We now expect earnings to fall 30% (-35% for EPS) in 2024 and recover 9% in 2025 (easing credit cost). 9M24 earnings accounted for 75% of our revised full-year forecast. We expect 4Q24 earnings to recover both QoQ and YoY due to easing ECL.

Downgrade to Underperform with a TP cut. We downgrade our rating to Underperform from Neutral with a cut in TP to Bt1.6 (based on 0.7x PBV for 2025F) from Bt2.

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.