TISCO Financial Group

Hold; Bt35.75

Price Target : Bt40.50; TISCO TB

4Q11 reported profit was below our expectations due to adjustment for deferred tax assets; core profit fell on weaker loan growth and NIM

Expect slower loan growth in 1Q12, and higher cost of funds from higher DPA fees

Maintain Hold and Bt40.50 TP

Comment on Results

4Q11 net profit fell 25% QoQ to Bt676m (EPS: Bt0.93) after a Bt127m adjustment for deferred tax assets, and a Bt248m reversal allowance for impairment of property foreclosed. But core profit also fell, with NIM weaker than we expected at 2.75% vs.3.46% in 3Q11 due to higher cost of funds (+44 bps) and lower loan yields (-30 bps) as a result of the floods. Meanwhile, TISCO booked lower brokerage fee income (under non-interest income) as the SET’s daily turnover tumbled 32% QoQ, although its market share rose to 2.8% from 2.4%. On the cost side, staff expenses fell 11% QoQ while LLP was flat at Bt310m in 4Q11 (implying 0.67% of total loans). Pre-provisioning profit fell QoQ, as expected.

The floods also slowed TISCO’s hire purchase loan growth to 1.1% QoQ (+17.8% YoY). However, total loans grew 1.8% QoQ led by higher real estate loans. Gross NPLs rose 15%, taking NPL ratio to 1.4% from 1.2% in 3Q11.

Recommendation

Maintain Hold. If the FIDF has to pay the interest costs on debt carried over from the 1997 financial crisis instead of the MoF, we expect DPA fees to be increased, which would raise cost of funds. In another scenario, if the DPA fee is charged based on average deposit base including B/E, TISCO’s NIM will suffer the most because of its large B/E base. We will review our loan and earnings growth after the result briefing on 13 January. We value TISCO at 1.7x average FY11-12F P/BV to derive a Bt40.50 target price.