TISCO Financial Group

TISCO Financial Group Plc
Investment thesis
Despite the end of the government’s first-time car buyer scheme, we believe that TISCO will deliver moderate loan growth in 2H13, led by corporate business (there should also be non-HP retail growth, such as personal loans). Our BUY rating stands, premised on: 1) a consensus-beating loan growth performance, 2) fee income expansion (driven by the capital and money markets) and 3) good asset quality management—the lowest NPLs/loans ratio in the sector of 1.45% with a high loan loss coverage ratio of 145%. We expect TISCO’s profitability to rise gradually QoQ in 3Q13 onward.   
August net lending expanded 1.1% MoM, led by corporate
TISCO’s net lending amounted to Bt278bn in August, up by 1.1% MoM and 27.1% YoY. Corporate loans rose 2.9% MoM, followed by retail at 0.9%. But SME lending value was flat MoM. We expect the bank holding company to sustain moderate loan growth through September and beyond, led by the corporate portfolio. There isn’t very much scope for HP lending growth in 3Q13, given that the delivery deadline for cars under the first-time car buyer tax rebate was end-June (though TISCO will probably achieve better HP numbers than most of the other HP vendors, given its track record). Note that we forecast FY13 loan growth of 22%.
Lower HoH loan loss provisioning in 2H13
TISCO has good asset quality management with a big loan loss coverage ratio of 145% and the lowest NPLs/loans ratio in the sector of 1.45%. We expect 2H13 loan loss provisioning to decline HoH after the holding firm set heavy LLPs of Bt1.75bn in 1H13 (inclusive of provisions against cyclical risk). Note that in the final six months of this year, business growth will be led by corporate lending, which entails much lower default risk than HP, so provisioning requirements will dive. Our FY13 LLP projection is Bt2.5bn, up 30% YoY.
2H13 NIM should be fairly stable HoH
The bank holding company plans to increase its non-HP high-yield lending operations (personal loans and small SME business) in order to help sustain its NIM through 2H13. Note that we assume NIMs of 2.9% in FY13 and 3.0% next year. Management expects the one-day Repurchase Rate to stay at 2.50% throughout 2013.