TISCO Financial Group
February net loans down 1.1% MoM, as expected
TISCO Financial Group Plc (TISCO)
Investment thesis
TISCO looks set to deliver weak HP lending this year following the end of deliveries under the first-time car buyer scheme in June 2013 (the scheme caused household indebtedness to blow out) and the poor state of the economy (especially tied to consumption). As such, its lending focus has shifted to corporate and SME (excluding car showrooms) business. Our HOLD rating stands, premised on: 1) moderate loan growth of 10%, 2) good asset quality management with the lowest NPLs/loans ratio in the sector of 1.7% (and a high loan loss coverage ratio of 128%) and 3) a high dividend yield of 6%.
February net lending declined 1.1% MoM, led by SME
TISCO’s net lending amounted to Bt280bn in February, down by 1.1% MoM and 2.1% YTD (but up 10.2% YoY). SME business (mostly car showrooms) was down 2.6% MoM, retail loans declined 0.9% and corporate loans dipped 0.6% (note that there was a major corporate loan repayment during the month). We expect corporate business to resume growth in 2Q14.
HP lending may not resume MoM or YTD expansion till 2H14. The fallout from the first-time car buyer scheme—an unprecedented surge in new car ownership and a blowout in household debt—would have taken months to clear even in the absence of a weakening economic environment. That said, we still assume FY14 loan growth of 10%. Note that management has just cut its FY14 loan growth guidance from a range of 10-12% to high single digits.
Lighter LLPs in FY14 could offset effect of slower loan growth
TISCO has good asset quality management—a high loan loss coverage ratio of 128% and the lowest NPLs/loans ratio in the sector of 1.7%. We expect FY14 LLPs of Bt3.6bn, down 13% YoY from last year’s heavy provisions of Bt4.1bn (including provisions against counter-cyclical risk). Lighter LLPs could offset or outweigh the effect on the bottom-line of slower YoY lending expansion. Note that the bank holding company’s FY13 loan growth was 17.7%.
NIM should be stable YoY, thanks to a low policy interest rate
Lending growth in FY14—particularly SME and personal loans—should enable TISCO to sustain its NIM in the 2.9-3.0% range. It plans to increase emphasis on high-yield loans (personal loans and small SME business) in order to keep its NIM high. Note that we assume a NIM of 2.8% in FY14. Management expects the one-day Repurchase Rate to stay at 2.00% throughout this year. A low policy interest rate should have an easing effect on competition for deposit mobilization among banks and state-owned special finance institutions. If the BOT were to cut the Repo Rate further this year (it cut it by 25 bps yesterday)—as many pundits expect it to—there could be upside to TISCO’s NIM.
