Tisco Financial Group

Tisco Financial Group Plc (TISCO)

Q2 2013 profit better than projected. Provision increases, but operating expense greatly drops
TISCO announced that 2Q13 net profit was B1.15bn, unchanged qoq but growing
26% yoy, better than our projected net profit at B1.07bn due to following factors:
1) 2Q13 operating expense fell 12.7% qoq (but rose 13.1% yoy) - better
than expected. 2Q13 cost to income ratio dropped from 43.22% to
41.14%, mostly marketing expense for new loan issuance that has decelerated.
2) Net interest income has grown 6% qoq and 28.9% yoy - as projected,
in line with 2Q13 net loan growth projected at 5.2% qoq and 33.5% yoy. Though
the net loan growth was high, it started to slow down qoq from more than 8% on
average in 2012. Overall, 1H13 net loan growth rose 13% from end-2012, in line
with our FY2013 net loan growth target at 20% yoy. We projected that 2H13 loan
growth would fall mainly due to pressure from new car hire-purchase loan. 2Q13
loan growth still came from every loan type: corporate, SME, and retail, which
grow greatly in new car hire-purchase loan and auto cash, while housing loan
decreased qoq. NIM remained close to the previous quarter at 2.81%. 3) 2Q13
debt provision decreased only 13.8% qoq (but rising 37.6% yoy) - worse
than projected. Credit cost fell to 116bp (we projected at 100bp) from 141bp in
the previous quarter, but higher than TISCO's 2013 policy level at 85bp. End-
2Q13 NPL rose from 1.12% of total loan to 1.31% of total loan, with low NPL of
new car portfolio but slightly rising in used car portfolio. Thus, coverage ratio of
LLR/NPL and LLR/provision decreased. However, though pressing factors came
from 1) 2Q13 fee and service income dropped 23.1% qoq (but rising
30.9% yoy) - as expected, mostly decrease in fee income from Bancassurance,
which was recognized as extraordinary income of B220m (one-time), as TISCO
could reach Bancassurance sales target of alliance insurance company in 1Q13,
but not in this quarter. Brokerage fee income was likely to fall slightly, as 2Q13
daily trading volume is lowered to B57bn from B64bn in 1Q13. Overall, positive
factors outweighed negative factors, so 2Q13 net profit grew qoq and 1H13 net
profit rose to B3.81bn, growing 47.7% yoy.
- Maintain forecast. 2H13 earnings projected to fall
We maintain TISCO's FY2013-2014 earnings forecast. 1H13 net profit would be
53% of total FY2013 forecast. 2H13 net profit is projected to fall from 1H13 due
to pressure from lower new car hire-purchase loan along with new care sales,
including cars in niche markets e.g. Ford, Mazda and Chevrolet, which are TISCO's
major loan. Though the bank has strategy to earn income from other high yield
loan e.g. auto cash and SME loan, it would not be enough to negate the effect due
to low loan base.
- Reiterate "HOLD" for dividend, stock price has little upside
For TISCO, we reiterate "HOLD" to receive dividend. Current stock price has little
upside of 12% compared to 2013 FV at 1.72x PBV at B47.20, but still granting
dividend yield of more than 5.9% on average in 2013 as projected.