TISCO Financial Group

TISCO Financial Group Plc

Investment thesis

Because of the expiry of the first-time car buyer scheme and weak domestic consumption, we believe that TISCO’s HP lending will decline further in 1H15, then start recovering in 2H15. In the interim its focus has shifted to corporate and SME (excluding car dealerships) business. Our TRADING BUY rating stands, premised on: 1) expected FY15 loan growth of 5%, 2) good asset quality management (the lowest NPLs/loans ratio in the sector of 2.3% and an adequate loan loss coverage ratio of 103%) and 3) fair expected dividend yields of 4.7% for FY15 and 5.2% for FY16.

January lending dropped 1.5% MoM from loan repayment

No surprise, TISCO’s net lending amounted to Bt251bn in January, down 1.5% MoM. SME (mostly finance for car dealerships) loans slipped 2.2% MoM. Corporate lending was down 2.5% MoM on a big-ticket on loan repayment. Retail loans dipped 1% MoM. We expect its lending performance to improve MoM in February, as we don’t anticipate a major corporate loan repayment. Corporate and SME business will drive loan portfolio growth in FY15. We model for loan growth of 5% in FY15 and 8% in FY16.

Lighter LLPs will be a key earnings driver this year 

TISCO has managed its asset quality well—its loan loss coverage ratio is 103% and it has the lowest NPLs/loans ratio in the sector of 2.6%. We expect its FY15 loan loss provisioning to decline YoY after the bank holding company set heavy provisions totaling Bt4.4bn in FY14. Our model currently assumes LLPs of Bt4bn this year, down 10% YoY. If LLPs were to be lighter than modeled, there would be scope for upside to our earnings forecast.

If the BOT were to cut the Repo Rate, TISCO’s NIM would fatten  

Lending growth in FY15—particularly SME business and corporate loans—should enable TISCO to sustain its NIM in the 2.9-3.0% range, according to management. The bank holding company plans to increase its emphasis on high-yield loans (personal loans and SME). Note that we assume a NIM of 3.1% for both FY15 and FY16 in our model. 

Management expects the one-day Repurchase Rate to remain 2.00% throughout 2015 (the managements of most of the other banks we cover expect at least one more cut to the Repo Rate during 1H15). We believe that a lower policy rate could boost TISCO’s NIM in FY15, which would enhance its earnings.