TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
Our BUY rating on TISCO stands, premised on: 1) moderate lending growth, 2) rising fee income (from both the capital market and loan-related fees), 3) excellent asset quality management and 4) an adequate CAR of 13.9% (9.5% Tier-1), so no need for capital-raising for some years. We expect core earnings to rise substantially QoQ in 4Q13 onward. Besides, its anticipated dividend yields are generous at 5.8% for FY13 and 6.6% for FY14.
October net lending was up 0.7% MoM, led by retail & corporate
TISCO’s net lending amounted to Bt281bn in October, up by 0.7% MoM and 15.6% YTD. The October net loan number augers well for the year as a whole; we currently assume FY13 lending expansion of 20%. 4Q13 growth will be driven by retail (HP for new cars) and corporate business and should be seasonally stronger than the rate in 3Q13. Management guides for FY14 loan growth of 10-15%.
TISCO says that corporate lending will expand fastest next year at 15-20%, but it currently comprises only about 15% of the total portfolio. Retail categories (70% of the portfolio)—consumer loans (10-15%) and HP for new cars (10%)—will expand as slower rates. We currently assume FY14 loan growth of 17%.
Capital remains adequate for FY14
TISCO believes that its capital adequacy ratio (CAR) of 13.87% (Tier-1 9.5%) is sufficient to accommodate lending growth this year and next after the bank holding company raised Bt1.5bn in new capital in April 2013. We had already assumed as such in our model.
NIM may inch up in 4Q13 with expansion of high-yield loan business
Lending growth in FY13—particularly SME and HP—should enable TISCO to sustain its NIM above 3%, said management. TISCO plans to increase its emphasis on high-yield loans (HP for new cars, personal loans and small SME business) in order to keep its NIM high next year.
Furthermore, management aims to raise the CASA proportion (the cheapest funding source) of its funding mix from 12% at end-September 2013 to 15-17% next year. Note that we conservatively assume NIMs of 2.9% in FY13 and 3.0% next year. TISCO expects the BOT’s policy interest rate to remain at 2.50% during the remainder of 2013 and throughout 2014 (the managements of most of the other banks we cover expect the Repo Rate to stay on hold till mid 2014).