Tisco Financial Group

Tisco Financial Group Plc (TISCO)

Q3 2012 profit projected to hit new high above B1bn… loan raises NIM up
TISCO’s 3Q12 net profit is projected to stand at B1.04bn or the growth of 13% QoQ and 10.7% YoY, climbing to hit quarterly record high constantly due to the following reasons. 1) Net interest income is projected to grow 9.4% QoQ and 8.7% YoY in line with the aggressive growth of net loans in 3Q12 that is projected at 12% QoQ, also rising to new record high by quarter. Overall, the net loans in 9M12 is projected to increase to 27.3% from end-2011, already exceeding FY2012 target of the bank assigned at only 18-20% YoY and also exceeding our FY2012 target we’ve projected at 22% YoY. This growth is from every type of loan, especially corporate (continuous loan disbursement), SME of which loans are mostly for auto-tent entrepreneurs (floor plan) and auto hire-purchase loan that has thrived notably due to benefits from continually vigorous domestic auto sales. 2) NIM is projected to increased 5bp to 3.08%, reflecting that NIM has already
survived the record low since 1Q12 as the bank has been confident of. This increase is a result of the bank’s strategy adjustment to focus on used auto loan and cash loan which give higher returns. 3) Debt provision in 3Q12 is projected to return to normal at 75bp from 112bp in 2Q12 as a result of increased write-off of bad debt for customers who had faced the flood crisis and intentional provision for debt at a higher rate than minimum rate set by the BOT because the bank has booked massive extraordinary income (FX gain) in prior quarter. Although there are negative factors from the FX gain that is projected to decline in this quarter and the operating expense that has risen 6.9% QoQ, they can be offset by the abovementioned factors, so 3Q12 profit is still able to soar.

2012 loan tends to be revised up but no effects toward profit. Debt provision might be too low
We’re likely to revise up 2012 net loan forecast of TISCO after an announcement of 3Q12 earnings result; however, this might not bare much benefit for 2012 net profit forecast since we might have to revise up our debt provision forecast as it was estimated at only 60bp which is lower than the
bank’s abovementioned policy. The overall look of 4Q12 operating result is projected to stabilize in a high level continuously from 9M12, probably growing more by 19.3% YoY in 2013 along with the new loans that still have boomed aggressively more to enter the group with high yield.
 

Recommend “HOLD” to receive dividend. In comparative overall look, we prefer TCAP
TISCO’s share price since the beginning of the year until now has increased by only 10.5%, still underperforming the sector’s average (+28.8%) and the market (+21.7%) which is in line with our recommendation of “HOLD” in the past. Although the current share price is above 2012 fair value at 1.53x PBV that is B37.20, it is close to each other if combined with the average dividend
yield at 5-6% p.a. (pay twice/year). Nevertheless, for investors who like the stocks in the auto hire-purchase sector and other retail loan, we recommend switching to TCAP (2012FV@B40) which is the leader in the sector with share price that is likely to outperform the market constantly.