TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
We reiterate our BUY rating for TISCO, premised on 1) consensus-beating loan growth, 2) excellent asset quality management with the lowest NPLs/loans ratio in the sector of 1.2%, 3) rising fee income (especially fees related to loans and the capital markets) and 4) CAR expansion from 13% to 14% with the issuance of Bt73m units of Transferable Subscription Rights (TSRs). These factors will sustain core earnings growth in FY13 and FY14. We forecast an FY13 profit of Bt4.8bn, up 29.5% YoY.
Strong loan growth momentum sustained through Q1 2013
We estimate 1Q13 lending expansion of 6.5% YTD, as major automobile makers have ramped up production in order to supply the backlog of new 600K cars ordered last year under the government’s first-time car buyer tax rebate scheme that must be delivered by end-June. Note that TISCO’s 2M13 net lending rose 4.4% YTD. We also expect its 1Q13 NIM to fatten QoQ to 2.89% from 2.81% the previous quarter in tandem with loan growth.
YoY jump in loan loss provisions likely
Given strong lending expansion and good asset quality management, we assume 1Q13 loan loss provisions of Bt500m, up 86% YoY (but down 6.2% QoQ).Note that management has set an FY13 loan loss provisioning peg of 90-100 bps of gross loans (it was 90 bps last year). We forecast FY13 LLPs of Bt1.9bn, roughly flat YoY. Likewise, its NPLs/loans ratio should remain at 1.2% at end-March, close to the YE12 number.
Greater scale has boosted efficiency
We expect TISCO to post a 1Q13 cost/income ratio of 43.7%, down from 53% for the corresponding period last year. Fee income should report a jump of 25% YoY, driven by loan-related fees, bancassurance and securities brokerage commissions. Note that TISCO’s FY12 fee income shot up 44% YoY. We anticipate much more modest fee income growth of 10% this year.
Expect strong Q1 2013 earnings growth of 31% YoY
The bottom-line should post expansion of 31% YoY and 10% QoQ to Bt1.1bn for 1Q13, driven by lending, a fatter NIM, well-managed OPEX and a lower headline corporate tax rate of 20% (down from 23% in 2012). We also expect further QoQ profit growth in 2Q13, led by loan growth (chiefly HP business and SME loans) and a lower corporate tax rate.