TISCO Financial Group

TISCO Financial Group Plc

11M12 loan growth beats full-year target. TISCO yesterday released its November
balance sheet, showing that loan growth continues robust. MoM loan growth was
2.75% in November (vs. 2.3% MoM in October), in line with strong domestic car sales. Its
November MoM loan growth by segment was 3% for retail loans (mainly auto), 6% for
SME loans and 1% for corporate loans. 11M12 loan growth was 29.7%, beating our fullyear
forecast of 30%. We expect loan growth to accelerate in December, fuelled by the
Motor Show. We raise 2012F loan growth to 33% from 30%, lifting earnings forecast by
1% for 2012F and 3% for 2013F. We continue to expect 2013F loan growth to slow to
18%, off this year’s high brought by the record-high domestic car sales estimated at
1.4mn units or +76% YoY plus expiration of the tax rebate for first-car buyers.

Downside risk from SSI. Concern on SSI’s ability to service its debt is the key
overhang for TISCO, which has ~Bt4bn in loans to SSI (1.8% of total loans), though so
far SSI is making its interest payments as scheduled. SSI will start making bullet
payments of principal to TISCO in 2Q13. SSI is in the process of raising capital, which
will ease the asset quality risk for its creditors, including TISCO, if successful. SSI expects
the capital increase to be complete in 1Q13. Of the targeted capital increase of
US$413mn, US$106mn (26%) has been raised via PP and rights as of Nov 21. Within the
next few months, SSI hopes to bump up its amount raised to US$246mn (60% of total
target) via additional injection by Vanomet and Sahaviriya Group and up to US$386mn
(93% of total target) if Vanomet converts the trade credit line of US$90mn to equity
and new partners inject additional equity of US$50mn. TISCO says the loan is fully
collateralized with collateral valued at 120-130% the amount of the loan. It has excess
loan loss reserve (LLR) of Bt2.1bn with LLR coverage of 171%. If the SSI loan turns into
an NPL, according to the bank, LLR coverage would decrease to ~130% from 180%.

Benefiting from interest rate cuts. Since the duration of its assets is longer than
duration of liabilities, TISCO benefits if rates are cut. We expect TISCO’s net interest
margin (NIM) to rise in 4Q12, benefiting from the 25 bps policy rate cut in October. We
expect another 25bps cut in policy rate in 1Q13 (likely in January) and thus further NIM
improvement in 1Q13. We forecast NIM at 2.85% (-70 bps) for 2012F and 2.9% (+5 bps)
for 2013F.

4Q12F preview. We expect 4Q12F earnings to increase 43% YoY and 1% QoQ to
Bt965mn, reflecting: 1) higher loan growth from the Motor Show, 2) improving NIM
QoQ from the 25 bps policy rate cut in October, 3) QoQ lower non-interest income on
lower investment gain and dividend income and 4) QoQ stable provisioning.

Maintain Buy. We maintain Buy on TISCO with an unchanged target price of Bt55
(1.95x 2013F BVPS), supported by its lead position in the sector for ROE, strong loan
growth and benefit from the interest rate cuts. We believe that TISCO is undervalued
at 1.7x 2013F BVPS relative to ROE of 21.6%.