TISCO Financial Group

TISCO Financial Group Plc 

 

Investment thesis

We attended TISCO’s analyst meeting yesterday, hosted by Chief Financial Officer Chatri Chandrangam. His guidance indicated that the bank holding company continues firmly in normal mode in 4Q15 and FY16 from less loan-loss provisioning (LLP) and good NIM. Our TRADING BUY rating stands, premised on: 1) a better 4Q15 for lending activities from 9M15, 2) a declining LLP trend in 4Q15 and FY16,  which could mean an upside to our earnings forecast, and, 3) its cheap PBV of 1.0x against a long-term mean of 1.45x. Also, we expect a good FY15 dividend yield of 5.2%, which should support the stock price against downside risk.

TISCO expects 4Q15 loans to drop slightly and improve in FY16

After a lending drop of 9.7% YTD in 9M15, TISCO’s FY15 loan growth target range is changed to about 9-10% due to the bad debt write-off of Bt3.4bn on SSI (UK) in 3Q15. This is in line with our forecast for a loan contraction of 10%. Again, the corporate, car-collateralized-loan (cars for cash) and medium SME categories will be the drivers, especially from 4Q15 onwards. Mr. Chatri said he expected an HP loan contraction of around 8-9% this year, which could be flat next year. TISCO believes that nationwide new car sales for 4Q15 will improve QoQ and YoY from the impact of a rising excise tax next year.

LLP-setting policy to normalize from 4Q15 onwards

With an adequate loan-loss-coverage ratio of 74% and a low NPL/loan ratio of 3.3%, TISCO guides that its LLP will decline YoY in FY16 (in tandem with keeping the better asset quality and small loan growth). We maintain our LLP assumption for FY16 at Bt3.7bn (down 28% YoY). Note that FY15 credit cost was 2.2% of YE15 gross loans and we forecast that TISCO’s FY16 credit cost should drop to 1.5% of YE16 gross loans. Again, a lower-than-modeled credit cost would mean scope for upside to our FY16 earnings forecast. In 3Q15, TISCO set extra LLP of Bt1.2bn for Sahaviriya Steel Industry (SSI). It does not plan to build a heavy reserve to 107% as stated in 2Q15 because its loans are backed by collateral. Also, its loan-loss reserve is 53% over BOT’s minimum requirement.

NIM to remain better in FY16; a REPO rate cut would mean an upside

TISCO believes that market interest rates are in no hurry to rise in 4Q15 and FY16 from slower economic recovery than was expected. It plans to raise its concentration on high-yield loans—personal loans and small SME business—to strengthen NIM. This stronger NIM could offset its low loan growth next year, management said. Note that we forecast NIMs of 3.4% for FY15 and 3.2% in FY16 after TISCO delivered decent 9M15 NIM of 3.5%. If market interest rates were to decline, its FY15-FY16 NIM would expand bigger than modeled because 63% of its total loans are HP (locked into fixed rates), whereas its 78% of funding is priced at short-term rates.