Tisco Financial Group

Tisco Financial Group Plc (TISCO)
 

Investment thesis: Although TISCO benefits from the ongoing consumption recovery (particularly the revival in car sales), its NIM will be squeezed by the BOT’s 47% fee on bank-issued B/Es and short tenure debentures/bonds. Furthermore, loan loss provisions (LLPs) will rise in tandem with perceived debtor risk. The two factors look set to dampen profitability in 2Q12 and 3Q12. Thus, we reiterate out HOLD rating.      
Heavier LLPs = modest 2Q12 profit growth: We forecast a 2Q12 net profit of Bt880m, up by 2% YoY and 5% QpQ. The YoY bottom-line growth is due to lending expansion of 6% QoQ and 17% YoY (which should offset the effect of heavier loan loss provisions and NIM squeeze), greater fee income and a corporate tax rate decline to 23% from 30% last year.
SSI and provisioning: TISCO is expected to set 2Q12 LLPs of Bt360m, up by 10% YoY and 34% QoQ. We anticipate that a portion of the increased provisions will be to cover potential losses from the bank’s stake in a syndicated loan to Sahaviriya Steel Industries Plc (SSI) to acquire a billet plant in the UK. Repayments on the loan aren’t scheduled till next year, so it is technically performing, according to management. But SSI’s heavy losses of Bt9.2bn for the period 2Q11-1Q12 do not inspire a lot of confidence in its ability to service the debt. TISCO’s effective lending exposure to SSI is Bt3.9bn. 
Note that our FY12 earnings projection is 5% higher than the consensus; the street appears to be more concerned about the SSI debt than we are.
3Q12 will be slightly better: HP and corporate business are driving loan growth. TISCO’s 5M12 net lending posted expansion of 19% YoY and 10.4% YTD. As such, there is scope for its loan growth performance to exceed current market expectations by a significant margin. We currently assume 18% for FY12 in our model, which is somewhat lower than the current expansion trend for the year. Besides, NIM will rise as a result of accelerated lending and improved funding cost management (TISCO plans to switch from B/E issuance to current & saving deposit mobilization).