TISCO Financial Group

TISCO Financial Group Plc (TISCO)
 

Profit 9% below our estimate: TISCO posted 1Q12 earnings of Bt836m, up by 1% YoY and 24% QoQ. The result was 9% below our estimate, but 4% above the consensus. 1Q12 NIM declined further QoQ to 2.89% (we had modeled for 3.1%). As such, pre-provision operating profit (PPOP) fell by 17% QoQ and 16% YoY to Bt1.3bn. 1Q12 earnings account for 22% of our earlier FY12 projection. 
Results highlights: Lending grew by 5.2% QoQ and 16% YoY—exceeding our estimate of 4.5% QoQ—driven by corporate and SME business. TISCO’s 1Q12 NIM was 2.89%, down 3 bps QoQ and 109 bps YoY. There was fierce competition for deposit mobilization and loan re-pricing during 1Q12. TISCO set loan loss provisions of Bt269m for the quarter, down by 13% QoQ and 24% YoY. Its NPLs/loans ratio remained 1.4% at end-March, fairly flat QoQ.
Outlook: TISCO will remain beset by higher funding costs in 2Q12 because of the BOT’s 0.47% levy on deposits and B/Es (up till January 2012 it charged only 0.40% and only on deposits, not B/Es). We assume that the bank holding company will take at least six months to boost its NIM by passing through rising funding costs to clients (HP is charged at flat rates; note also that B/Es are typically of durations of from three to six months). As such, NIM squeeze is going to make for a subdued 2Q12 bottom-line, despite QoQ lending growth.
What’s changed? We have cut our FY12-13 earnings projections by 5% and 9.1%, respectively, to Bt3.6bn and Bt4bn to factor in diminished expectations for NIM—3.12% in FY12 and 3.18% in FY13 (we previously modeled for 3.23% for FY12 and 3.33% for FY13).
Recommendation: Given our pared back FY12 earnings projections, we have revised down our TISCO YE12 target price by 5% to Bt42.75, pegged to a justified PBV of 1.69x. We have, thus, downgraded our rating to HOLD from BUY.
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