Tisco Financial Group

Tisco Financial Group Plc (TISCO)

4Q13 profit to drop 14.1%qoq due to higher provision and seasonal cost
TISCO's 4Q13 net profit is projected at B973m, contracting 14.1%qoq and 2.3%yoy
due to the following pressing factors: 1) 4Q13 operational cost is projected to
increase by 12.5%qoq (but shrinking 3.1%yoy), mainly an increase in expenses on
personnel and sales promotion in the high season. Thus, 4Q13 cost to income ratio is
likely to rise from 41.18% in 3Q13 to 45.76%. 2) 4Q13 debt provision is projected to
increase by 5.5%qoq and 51.4%yoy. Credit cost is likely to rise from 109bp in 3Q13
to 112bp. Though used car price has started to stabilize, loss from repossessed car
sales would still be booked. However, there are still following supporting factors: 1)
4Q13 interest income is projected to grow by 1.6%qoq and 22.1%yoy, in line with
4Q13 loan growth expected at 2.9%qoq and 18.0%yoy, mainly from corporate loan
for real property and utility, which are long-term loan. For retail loan, car leasing loan
would be growing, but at decelerating rate (focusing on new cars), whereas other
retail loan (mainly auto cash and personal loan) would have good growth. SME loan
would grow nicely, mainly from an increase in floor plan loan for car dealers
stockpiling for upcoming motor shows. 4Q13 NIM is projected to drop slightly by 3bp
to 2.82%. 2) 4Q13 fee income is projected to grow by 1.9% qoq and 0.9% yoy.
Though brokerage fee would decrease due to sluggish securities business and the
unhealthy stock market, fee income from fund selling and bancassurance would still
increase. However, these supporting factors would not be enough to compensate for
the pressing factors. Overall, 4Q13 net profit is expected to drop, but FY2013 net
profit is projected to be 2.2% higher than the forecast.
- To focus on retail loan in 2014. Car leasing business to slow down in
1H14
In 2014, TISCO's total net loan growth is projected at 10-15%yoy. Other retail loan
(7-8% of total net loan) is likely to continue prospering from 2013 (with growth
targeted at 30%yoy). Corporate loan (17% of total net loan) is likely to grow by 15-
20%yoy. However, SME loan is projected to slow down from 2013 as a result of
tightening policy on loan issuance for floor plan entrepreneurs. TISCO predicts that
the recession will continue in 1H14. Thus, TISCO's credit cost is likely to reach 120bp,
higher than the average of 110bp. For fee income, TISCO is likely to focus on depositrelated
transaction to expand cross selling. Thus, FY2014 net profit is projected to
leap by 8.2%yoy.
- "BUY" for dividend. PBV below 10-year average. 6-7%p.a dividend
yield
We reiterate "BUY". Though there is no stimulating factor in a short term, TISCO's
share price has substantially absorbed the pressure. As TISCO is a small commercial
bank, it can change its business strategy flexibly. Moreover, its financial position is
strong, and its debt provision is higher than other small commercial banks. TISCO's
current share price has 1.3x PBV, which is lower than 10-year average of 1.8x. We
derive TISCO's FY2014 fair value at B47.41 (1.56x PBV, 19.5% long-term ROE),
implying over 24% upside. Dividend yield in 2013-2015 is 6-7% (paying once a year).