Tisco Financial Group

Tisco Financial Group Plc (TISCO)

Q2 203’s profit to contract qoq. Fee income & debt provision normalize, loans decrease
We estimate 2Q13’s net profit of TISCO at B1.07bn, down 7%qoq (but still up
16.6%yoy), which is the first contraction in 6 quarters due mainly to the following
factors. 1) Service and fee income in 2Q13 is projected to decrease 15.4%qoq
(but still growing 44.1%yoy) mostly as a result of a one-time income from
Bancassurance sales booked in 1Q13 at B220m that did not happen in this quarter.
Brokerage fee income, at the same time, would weaken slightly following average
trading volume in 2Q13 that dropped to B57bn a day from B64bn in 1Q13. 2) Cost to
income ratio in 2Q13 is estimated to increase to 48.85% from 43.3%.
Operating expense would rise 7.6% qoq and 39.3%yoy mainly from an increase in the
expense for an opening of micro office in 2013 as planned (the increase in the cost to
income ratio results from decelerated income growth). However, the following positive
factors are still projected in this quarter. 1) Net interest income is projected to
grow 8.1%qoq and 31.6%yoy, in line with the net loan growth in 2Q13 that is
anticipated at 5%qoq and 33%yoy, very high but decelerating from the growth of
7.4%qoq and 37.1%yoy in 1Q13. However, overall, net loan growth in 1H13 is
estimated at 12.8% from end-2012, still in line with FY2013’s net loan growth target we
estimate at 20%yoy. The loan growth in 2Q13 would come from retail loans, especially
new auto hire-purchase and auto cash, as well as corporate loans and SMEs that have
grown continuously. Meanwhile, NIM still stabilizes near that of the previous quarter at
2.80%. 2) Debt provision expense is anticipated to decrease 25.5%qoq (but
still increasing 19%yoy). Credit cost is projected to drop to 100bp from 141bp in the
prior quarter, but still higher than the policy level in 2013 TISCO set at 85bp. NPL at
end-2Q13 would stabilize at 0.76% of total loans (NPL of new auto portfolio is still low,
while that of used auto has shifted slightly). However, overall, as the negative factors
have larger weight than the positive factors, the net profit in 2Q13 is estimated to
decline qoq.
- Maintain forecast but slash 2013’s FV following long-term ROE forecast cut
We maintain our 2013-2014’s earnings forecast. 1H13’s net profit is projected to
comprise 51% of FY2013’s forecast. However, as TISCO depends on retail loans, mostly
new auto, by 71% of its total loans, it has to face pressure from weakening new
domestic auto sales, as well as niche market autos that are major markets of TISCO,
including Ford, Mazda, and Chevrolet. Although the bank has attempted to increase
income from other high-yield loans such as auto cash and SMEs, it still needs a long
time because the loan bases are very low. Consequently, we revise down our ROE
forecast for the next 5 years to 21% from 25%, resulting in a new 2013’s fair value, at
1.72x PBV, of B47.20 from B57.70 at 2.1x PBV.
Hold to received dividend. Upside is still limited
We reiterate our recommendation of “hold to receive dividend”. The current share price
has around 12% upside from the new fair value.