TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
We reiterate our BUY rating on TISCO, premised on: 1) the strongest loan growth in the sector, 2) swift fee income growth (related to both the capital markets and loans), 3) excellent asset quality management and 4) an adequate CAR of 13.5% (9.1% Tier-1, including the recent capital-raising via TSRs). We expect core earnings to rise substantially QoQ in 3Q13 in tandem with lending, fee income, a sustained NIM and lower loan loss provisions. Besides, its FY13 dividend yield remains the highest in the Bank sector at 5.3%.
TISCO reiterates FY13 loan growth guidance of 20%
1H13 loan growth of 13% YTD makes the bank holding company’s FY13 target of 20% look comfortably achievable. Management says the expansion rate for HP for new cars will ease to 1% MoM in 2H13 from 1.5% in 1H13 with the end-June delivery deadline for the govt’s first-time car buyer tax rebate scheme. SME and corporate business will rise in 2H13, while HP for used cars will decline—TISCO has minimized this business since 4Q12, as the default rate is rising and used car prices are falling (a side effect of the first-time car buyer scheme). We maintain our FY13 loan growth projection at 22% and assume a NIM of 2.9%.
Quarterly LLPs will be lighter in 2H13 and beyond
Given a loans/NPLs ratio of 1.45% and a high loan loss cushion ratio of 145%, TISCO believes that its 2H13 loan loss provisions will be softer HoH (note that it set an extra counter-cyclical provision of Bt400m in 1H13). Management views that its NPLs/loans ratio might inch up to 1.7% at YE13. TISCO maintains FY13 credit cost guidance of 110 bps of gross loans. Thus, its provisioning for 2H13 will be much lighter HoH (its 1H13 credit cost was 140 bps). We reiterate our FY13 LLP assumption of Bt2.5bns (up 30% YoY), based on a credit cost of 1.1%.
Strong fee income growth outlook for 2H13
Management believes that fee income will be the another earnings driver in 2H13 after jumping 45% YoY to Bt2.9bn in 1H13, led by bancassurance sales, loan-related fees and brokerage fees. TISCO guides that the FY13 cost/income ratio will be lower than the 43% set for FY12. Note that our FY13 assumption is 43%, so if the bank holding company were to deliver a cost/income ratio that was significantly lower than that level, there would be scope for upside to our earnings forecast for the year.