TISCO Financial Group

TISCO Financial Group Plc (TISCO) 

 

In line with estimates, 4Q15 net profit rose 1% YoY and 54% QoQ to Bt1.24bn, leaving 2015 with flat growth at Bt4.25bn. In line with management guidance, 4Q15 reflected: 1) a drop in credit cost to 1.5% from 3.65% in 3Q15 on absence of extra provisions for SSI loans plus a slight easing in NPL ratio to 3.23% from 3.3% at 3Q15 and a rise in LLR coverage to 80.1% from 74.1% at 3Q15; 2) flat loan growth QoQ, improving from the QoQ contractions since 1Q14, ending 2015 with a loan contraction of 9% for the year;  3) 18 bps QoQ improvement in NIM mainly from a 16 bps QoQ fall in cost of funds; 4) a slight QoQ decrease in non-NII, mainly on lower trading & forex gain;  5) a 79% QoQ rise in opex as this item returned to normal after be slashed in 3Q15 to mitigate the effect of the additional provisions for SSI loans.  

Earnings recovery on easing provisions. We expect profit to grow 14% in 2016F, mainly driven by lower provisions. TISCO expects credit cost to normalize to 1.3-1.4% (1.6% SCBS forecast) of total loans in 2016 from 1.5% (2.46% including provisions for SSI loans) in 2015, as fewer auto loans become NPLs. TISCO targets 2016F loan growth of 3% (0% SCBS forecast), with stagnant retail loans and mid to high single-digit growth in corporate & SME loans. We sees no room to bring cost of funds down any further in 2016 and expect it to hold NIM at the 4Q15 peak in 2016, translating a rise in 2016 NIM of 10 bps YoY.   

Valuation over-penalized. We Buy TISCO. It is trading at a deep discount to valuation at below 7x PER despite the fact that earnings are recovering in tandem with easing provisioning needs for auto loans.