Tisco Financial Group

Tisco Financial Group Plc (TISCO)

- Revive fastest among leasing companies. Keep 2014 loan growth target at 10-15%yoy
We believe TISCO would be able to show the fastest recovery among leasing
companies as used-car loans make up only 13% of its total loan portfolio, comparing
to 47% for KKP and 25% for TCAP. Although NPL from car leasing business of TISCO
has been rising in the first two quarters to 1.9% of total loans (mostly from used cars,
while almost zero NPL was seen from new cars), it is still close to those of KKP and
TCAP at 1.6% of total loans. The advantage TISCO has over its rivals is the coverage
ratio (LLR/NPL) of 136.5%, which is the highest among peers compared with 110.8%
of KKP and 84.3% of TCAP, thanks to a strict debt provisioning policy that might be
continued in 1H14 in accordance with a pressure from used car oversupply in the
market. Moreover, the business strategy adjustment for the rest of 2013 and 2014
could proceed faster than expected. FY2013 net loan growth is projected to achieve
the target of 20%yoy as the fourth quarter is a high season for leasing loans (new car
selling from Motor Show) as well as other retail loans (7-8% of total loans) including
personal and auto cash. At the same time, corporate loans would continue growing by
15-20%yoy in 2014. FY2014 net loan growth is targeted at 10-15%yoy on average,
driven mainly by other retail loans that give high yield and aggressive branch
expansion in the past.
- Diversified income structure. Fee income proportion largest among peers in 9M13
TISCO now has better income diversity. The bank succeeded in reducing dependency
on income from the main business – net interest income, from a proportion of sevenyear
high at 78.3% in 2008 to only 55.8% of total income in 9M13. Meanwhile, the
fee income proportion has enlarged significantly from only 22.1% to 33.5% of total
income in 9M13, under total income growth during 2007 – 2012 at 20.3% p.a.
(CAGR) and 25.5%yoy in 9M13. At the same time, the ratio of fee income to total
income of TISCO in 9M13 stood at 33.5%, the highest compared with the sector’s
average of only 20.8%, reflecting the business synergy. In terms of fee income
growth in the next three years, TISCO will be focusing on transactions related to
deposit clients for cross selling instead of loan-client-related transactions at present
(while other banks are seeking income from 75% of total deposit clients). The
strategy to increase CASA clients will also be beneficial in terms of decreasing funding
cost in the long run. TISCO is aiming to increase fee income by not lower than
15%yoy in 2013 and 10%yoy in the next three years.
- Buy. ROE above 20%. Share price already reflects negative factor.
Div yield over 6-7% p.a.
We reiterate to buy. The share price has substantially undergone correction to reflect
negative factors until PBV got lower than the past 10 year low of 1.8x at 1.6x. 2014
fair value is B47.41, based on 1.56x PBV and long-term ROE forecast of 19.5%,
implying more than 9% upside. Dividend yield can be expected at 6-7% p.a. in 2013-
2015 (paying annually).