Tisco Financial Group

Tisco Financial Group Plc (TISCO) Plc

1st quarter 2014 profit leaps due to lower debt provision
TISCO's 1Q14 net profit was B935m, growing 16.2% qoq but falling 19%yoy (8%
below our expectation), making up 20% of FY2014 earnings forecast. Debt provision
decreased by 27.5%qoq (lower than expected). Credit cost dropped from 221bp in
4Q13 to 164bp in 1Q14 (compared to the FY2014 average of 142bp), still higher
than TISCO's FY2014 target at 120bp. 1Q14 NPLs made up 1.73% of total loan,
mainly from used-car leasing and housing loan, but not increasing as rapidly as in
2H13. Excluding the items, TISCO's 1Q14 normalized profit dropped by 9.9%qoq.
1Q14 operating expense increased by 14.8%qoq (as expected) as personnel expense
returned to normal (continuous bonus provision for 2014). Net interest income
stayed flat (as expected) as net loan contracted by 2.6%qoq. Repayment of car
leasing loan was larger than new loan issuance, and repayment of corporate loan
were high because of decreasing confidence amidst the political turmoil. SME loans
(floor plan) have also decelerated for a while; only auto cash loan showed strong
growth. 1Q14 NIM slid 4bp to 2.67% (as expected) because funding cost increased
as deposit base grew. Though fee income rose by 4.2%qoq (better than expected), it
could not negate the negative factors.
- To revive in 2nd half 2014
We maintain our FY2014 earnings forecast, projecting TISCO's net profit to grow by
10.2%yoy. Despite dull performance in 1H14 as a result of the sluggish economy, it
would recover in 2H14 if the political turmoil recedes. We believe TISCO would show
the quickest recovery among peers because its used-car leasing portfolio is smaller
than peers. NPL coverage ratio is also much better than peers, thus lowering the
pressure on its earnings results throughout 2014.
- Buy for over 6.7%p.a dividend yield
We reiterate to buy. The current share price has only 1.3x PBV (versus the ten-year
average PBV of 1.8x). We derive FY2014 fair value (1.50x PBV, 19% long-term ROE)
at B47.41, implying over 12% upside. FY2013-2015 average dividend yield is as high
as 6-7%p.a (paid annually).