Tisco Financial Group

Tisco Financial Group Plc (TISCO)

- 3Q13 fails to make new high, but business stabilizes as expected
TISCO announced 3Q13 net profit at B1.13bn, 4% lower than our projection,
shrinking slightly by 2.3%qoq but still growing 18.8%yoy. The earnings failed to
make a new high by quarter because the investment profit and Fx gain were lower
than expected. Nevertheless, the overall performance was still in line with our
projection. 1) 3Q13 net interest income grew 3.9%qoq and 27.1%yoy, in line
with 3Q13 net loan growth of 1.5%qoq and 24.8%yoy. Corporate loans for real
property and construction projects as well as basic utility projects and services, which
are mainly long-term loans, enlarged 1.4%qoq, while retail loans increased 2.7%qoq.
Car leasing loans continued growing, but at a slower rate than in 1Q13 as anticipated
because TISCO has still focused on new car business and avoided used-car leasing
loan issuance. Auto cash and personal loans showed robust growth of 8.8%qoq, while
SME loans declined 4.9%qoq due to higher debt repayment than new loan issuance,
especially floor plan loans that decelerated as a result of sluggish used car business.
Overall, 9M13 net loan growth increased to 14.7% from end-2012, still consistent
with our FY2013 growth target at 20%yoy as loan growth usually accelerate during
year-end. 3Q13 NIM stabilized at 2.82% from the previous month as projected. 2)
3Q13 fee and service income shifted 1%qoq and 15.3%yoy – lower than
expected. Aside from fee income from loan transaction that has grown along with the
business, fee income has also grown due to affiliated companies' fund selling, as well
as bancassurance business. Brokerage fee from securities trading decelerated qoq, as
3Q13 securities trading volume has declined from B50.5bn a day in 2Q13 to B36bn,
thus depressing TISCO's investment portfolio significantly in this quarter. 3) Debt
provision in 3Q13 dropped 4%qoq (but still rising 46.3%yoy) – better than
projected. Credit cost decreased to only 109bp from 116bp in 2Q13, while NPL
(gross) of the bank remained close to that of the prior quarter at 1.30% of total
loans. 4) Operating expense decreased 2.6%qoq and 11.4%yoy – better than
expected, mainly because of a decrease in personnel expense and other expense.
Consequently, cost to income ratio stood at 41.1%, close to 2Q13’s.
- To review forecast after analyst meeting. Steady growth projected in 4Q13
We maintain our earnings forecast for FY2013, but might review it again after the
analyst meeting soon as 9M13 earnings already make up 80% of our full-year
forecast. We project 4Q13 earnings to stand high like in the prior quarter. Moreover,
if TISCO manage to boost growth of other loans with higher yield instead of car
leasing loans and increase fee income that has been growing well, pressure from
deceleration of car leasing loan issuance would be negated.
- Buy on weakness. Share price rises rapidly, profit-taking foreseen
We reiterate to buy, focusing on buying on weakness as the share price has risen
rapidly more than 12% over the past two weeks since we upgraded our
recommendation. Short-term profit-taking is foreseen after 3Q13 earnings are
reported, while the current share price has only 2% upside left when compared with
FY2013 fair value at 1.56x PBV and under long-term ROE forecast of 19.5%.
Nevertheless, dividend yield is still expected high at 6-7% p.a. in 2013-2015.