TISCO Financial Group

TISCO Financial Group (TISCO)

 

Profit in 3Q15 was 10% below our number

TISCO reported 3Q15 earnings of Bt810m, plunging both 26% YoY and 19% QoQ. The result was 10% below our number but 16% over the Bloomberg consensus. This was attributable to bigger loan-loss-provision (LLP) setting. We forecast its 3Q15 LLP to be Bt1.9bn against its released figure of Bt2.2bn. However, its pre-provision operating profit (PPOP) was Bt3.0bn, up 29% YoY and 25% QoQ. Its 9M15 profit comprises 73% of our FY15 forecast of Bt4.1bn.

Results highlights

Lending slipped 4.8% QoQ (down 9.9% YTD)—broadly in line with our estimate. Disaggregated by category, retail loans (such as HP loans for autos and motorcycles) dipped 1.9% QoQ, and its SME business fell 2.5% QoQ. Likewise, corporate lending shrank 16.4% QoQ, caused by a bad debt write-off of Bt3.4bn for SSI (UK) and big-ticket loan repayments. However, its 3Q15 NIM jumped 35 bps QoQ and 54 bps YoY to 3.72%, attributable to the fact that the cost of funds declined faster than lending rates YoY.

TISCO set big LLP of Bt2.17bn for 3Q15, a rise of 89% YoY and 74% QoQ, which reflects rising risk aversion due to economic uncertainty in the quarter in addition to provision for SSI (UK). Its 3Q15 LLP setting was 14% over our estimate of Bt1.9bn. Its stated that NPL/loan ratio inched up to 3.3% at end-September from the 2.86% three months earlier due to large lending contractions. The loan-loss-coverage ratio dipped to 74% from 107% three months earlier. Fee income for 3Q15 was flat YoY but down 4% QoQ from bad SET Index sentiment and lending contractions.

Outlook

We have maintained our TISCO loan contraction forecast of 10% before it grows 6% next year. We also currently expect 4Q15 earnings to climb YoY and QoQ, driven by lower LLP setting, rising retail loans and improved NIM.

What’s changed?

We maintain our FY15 earnings forecast of Bt4.1bn. 

Recommendation 

We expect that its corporate and personal loans should show gains from 4Q15 onward, assuming that private investment starts to pick up late this year. That would open space for a lending recovery in 4Q15 and FY16 from a lending contraction of 9.9% YTD. We also anticipate TISCO’s LLP to decline in FY16 by at least 28%. Given the better business outlook, cheap valuation and lower LLP from last year, we upgrade our TISCO rating to TRADING BUY from SELL.