TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
We maintain our BUY rating on TISCO, premised on: 1) consensus-beating loan growth of 23% YTD for 9M12, 2) a declining loan loss provisioning trend and 3) strong fee income (33% YoY growth during 9M12). These factors will push up the firm’s core profit substantially in 4Q12 and beyond. For the moment, our FY12-13 forecasts stand unchanged.
TISCO bullish about its 4Q12 outlook
With TISCO having achieved 9M12 lending expansion of 23% YTD, management maintains its FY12 loan growth target floor at 20%. The SME and retail categories will remain the drivers in 4Q12. But 4Q12 lending growth momentum won’t strengthen QoQ. The bank holding company plans to focus more on high-yield loans. Thus, we are confident that our FY12 loan expansion forecast of 28% is achievable. TISCO targets FY13 loan growth of about 15%. We project loan growth of 17% next year.

Capital remains adequate for next year
Management believes that the capital adequacy ratio (CAR) at end-Sept of 13.5% (Tier-1: 9%) will be sufficient to accommodate moderate lending expansion in FY13. Note that TISCO might consider for cutting its dividend payout ratio from 50% currently to 35-40% for FY13 onward (payout in 2014) in order to build its Tier-1 reserve. Management doesn’t plan making a cash call so long as ROE remains above 20%. Note that we already assumed in our model that TISCO would cut its payout ratio to 43% for FY13 performance and 35% for FY14. Under this approach, we calculate that its CAR would be 13.3% (Tier-1: 8.7%) at YE12 and 13.1% (Tier-1: 8.5%) at YE13.

LLPs will fall in tandem with slower lending growth, says TISCO
With the highest loan loss coverage ratio in the sector of 180% and a low NPLs/loans ratio of 1.2%, TISCO guides that its loan loss provisioning will decline in 4Q12 onward (in tandem with slower lending growth for the quarter). We, however, maintain our FY12 loan loss provision assumption at Bt1.6bn. Note that Sahaviriya Steel Industries (SSI) is in the process of increasing capital. If the deal is completed, SSI will be able to operate for another year, claims TISCO, which has lending exposure of Bt3.9bn to SSI. The first debt repayment is scheduled for 2Q13.
NIM will rise slightly next year with high-yield loan focus
Faster retail lending growth in FY12—particularly HP (driven by the first-time car buyer tax rebate)—will allow TISCO to sustain its NIM at 3.1% throughout this year. It also plans to increase its concentration on high-yield loans—used cars, personal loans and lending to small businesses—in order to sustain NIM. Note that we forecast NIMs of 3.10% for FY12 and 3.15% for FY13.