TISCO Financial Group

Investment thesis

Because of the expiry of the first-time car buyer scheme and the weak state of the economy, we believe that TISCO will deliver weak HP lending in FY14 and early next year. Its focus is shifting to corporate and SME (excluding car dealerships) business in FY15. Our HOLD rating stands, premised on: 1) expected FY15 loan growth of 5%, 2) good asset quality management (the lowest NPLs/loans ratio in the sector of 1.9% and an adequate loan loss coverage ratio of 106%) and 3) fair dividend yields of 4.7% for FY14 and 5.1% for FY15.

November net lending up 0.2% MoM, as expected, led by SME

Net lending amounted to Bt265bn in November, up 0.2% MoM but down 7.2% YTD. SME (mostly finance for car dealerships—the first month of this year during which SME business with dealerships rose) loans grew 2.6% MoM. Corporate lending was up 2.1% MoM. Retail, on the other hand, declined 0.9% MoM. We expect TISCO’s lending performance to improve further MoM in December on seasonality and a modestly better macro-economic climate. Corporate and SME business will drive portfolio growth. We model for an FY14 loan contraction of 4% and FY15 loan growth of 5%.

Lighter LLP-setting for 4Q14 onward 

TISCO has managed its asset quality well—its loan loss coverage ratio is 106% and it has the lowest NPLs/loans ratio in the sector of 2.4%. We expect its 4Q14 and FY15 loan loss provisioning to decline YoY after the bank holding company set heavy provisions totaling Bt4.1bn in FY13 and Bt3.5bn in 9M14. Our model currently assumes LLPs of Bt4.5bn this year and Bt4bn in FY15.

4Q14 NIM expected to be stable YoY 

Lending growth in 4Q14—particularly SME business and corporate loans—should enable TISCO to sustain its NIM in the 2.9-3.0% range, according to management. The bank holding company also plans to increase its emphasis on high-yield loans (personal loans and SME) next year. Note that we assume a NIM of 3% for both FY14 and FY15 in our model. Management expects the one-day Repurchase Rate to stay at 2.00% throughout 2015 (the managements of most of the other banks we cover expect at least one more cut to the Repo Rate during 1H15).