Analysts Expect a Solid Growth in MTC’s HP Business in 2021, Giving a TP as High as Bt85!

Muangthai Capital Public Company Limited (MTC) reported a soaring net profit of 5,213 million baht in 2020, an increase of 23% compared to a net profit of 4,237 million baht in 2019.

 

As a leader in auto- and motorcycle-title loans, MTC’s earnings consecutively reach a record high each year, and the outstanding performance is expected to continue in the next 3 years, according to analysts.

MTC has a total of 4,884 branches as of December 31, 2020, increased by 777 branches from a year earlier. Loan receivable quality or non-performing loan ratio for the year ended December 31, 2020 is 1.06%, compared to 1.03% as of December 31, 2019: 1. Meanwhile, Debt-to-Equity Ratio (D/E) is 2.73 times.

Total revenue for 2020 is 14,733 million baht, an increase of 16.12%. The company has total assets of 77,222 million baht, increased from last year 15,350 million baht or 24.81%, mainly due to the increase of loan receivables.

As of December 31, 2020, the company has total liabilities of 56,540 million baht, increased from last year 10,640 million baht or 23.18%, mainly due to the increase of funding and the increase of contractual liabilities under TFRS16.

MTC is targeting to add 600 more branches per year over the next three years (2021-23) to have at least 6,700 branches by end-2023. It has also guided for loan portfolio to grow at least 20% p.a. over the same period.

 

Citi Research upgraded MTC to Buy (from Sell) mainly on better growth outlook driven by its new bike hire purchase (HP) business. The security company incorporated potentially higher loan growth, NIM and asset quality impact of the new business, along with better asset quality outlook into its 21E-22E forecasts, which raises 21E-22E EPS by 10%.

Citi estimated MTC to report a net profit of 6,055 million baht in 2021, 7,469 million baht in 2022 and 9,347 million baht in 2023.

CITI also upgraded MTC’s target price to Bt80 (from Bt54) based on 25x PE on avg. 21E-22E EPS.

 

Kiatnakin Phatra Securities (KKPS) stated that going forward, it expected the recovery of loan growth in 2021 (+23% YoY) on the back of pent-up demand for loans especially from the agricultural sector.

MTC is expected to scale up its Hire-Purchase portfolio within its existing customers with a strong track record first, in order to control overall asset quality and credit cost. This is because the loan-to-value for new HP is up to 100% in general.

Moreover, new HP normally has a high probability of default and loss, given historic data of default of up to 70%. Eventually, the credit cost for new HP could be up to 7-10% versus credit cost for auto-backed loans at only 1%.

Thus, KKPS conservatively expected new HP loans of around Bt1bn (up around Bt600mn YoY) in 2021E. Sensitivity-wise, if new HP loans are higher than its current forecast, every Bt1bn in new loans would create an earnings upside of 1.5%.

KKPS gave a target price for MTC at Bt80, based on the Gordon Growth Methodology (GGM) with an appropriate ROE of 26%, cost of equity of 13.5% and medium-term growth rate of 11%.

 

DBS Vickers Securities (DBSVS) estimated MTC’s earnings in 2021 at 5,915 million baht, and in 2022 at 6,781 million baht. The security company maintained its “BUY” rating with a higher target price of Bt85, pegged at 7.0x FY21F PBV, i.e. 0.5SD below its 5-year average PBV.