TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
We have revised down our TISCO profit forecasts by 4% for FY14 to Bt5.1bn and by 8% for FY15 to Bt5.7bn (our FY13 projection stands unchanged). The cuts were prompted by heavier LLP assumptions. Thus, our YE14 target price slips 5.2% to Bt45, pegged to an unchanged PBV of 1.4x.
Despite our lower profit forecasts, our BUY rating stands, premised on: 1) a cheap valuation (a YE14 PBV of 1.2x and the highest ROE in the Bank sector of 19.5%), 2) scope for loan growth upside (SME and corporate) in FY14, 3) good asset quality management (the lowest NPLs/loans ratio in the sector of 1.5% with a loan loss coverage ratio of 136%) and 4) generous dividend yields of 6.2% for FY13 and 6.8% for FY14.
Good loan growth through 4Q13
4Q13 lending expansion of 3.5% QoQ is assumed, with growth across the corporate SME and HP (high season for new car sales) categories. We expect the bank holding company to report a 4Q13 NIM of 2.73%, down slightly QoQ. Note that TISCO’s 11M13 net lending expanded by 17% YTD and 21% YoY. We model for FY13 loan growth of 22%.
Heavier YoY loan loss provisioning
Given strong lending growth and good asset quality management, we assume 4Q13 loan loss provisions of Bt622m, up 17% YoY but down 20% QoQ (in 9M13, TISCO set extra provisions for counter-cyclical risk). Note that management plans to set a credit cost equal to 0.8-1.0% of gross loans for 4Q13, down from 1.5% in 9M13. Due to the prevailing political uncertainty, we have raised our LLP assumptions by 7% to Bt3.6bn for FY14 and by 16% to Bt3.9bn for FY15.
Cost/income ratio looks sustainable
We expect TISCO to post a 4Q13 cost/income ratio in the range of 43-44%, basically flat YoY. Fee income should report a jump of 20% YoY, driven by loan-related fees, bancassurance sales commissions and securities brokerage fees. We assume that 4Q13 non-interest income grew 22% YoY but dipped 1% QoQ. Fee income for FY13 should have expanded by 21% to Bt4.9bn, according to our model; we forecast further growth of 12.5% to Bt5.5bn in FY14.
Expect strong 4Q13 profit increase of 16% YoY
TISCO’s 4Q13 profit is anticipated at Bt1.6bn, up 16% YoY, driven by ongoing lending growth, good OPEX management and a lower headline corporate tax rate of 20% (down from 23% in 2012). In QoQ terms, we expect the bottom-line to inch up just 2%, led by lighter loan loss provisioning, which we believe would have outweighed the effect of lower fee income (chiefly lower securities brokerage revenue and investment gains in) and year-end expense-booking.