TISCO Financial Group

Investment thesis

We attended TISCO’s analyst meeting yesterday, hosted by Chief Financial Officer Chatri Chandrangam. His guidance offered that the bank holding company is continuing firmly in normal mode in FY16 from less loan-loss provisioning (LLP) and small loan growth. Our TRADING BUY rating stands, premised on: 1) better FY16 lending activities from 4Q15 onwards, 2) a declining LLP trend in FY16 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. Additionally, we anticipate a good FY15 dividend yield of 5.3%, which should support the stock price against downside risk.

TISCO expects FY16 loans to rise slightly 

After a lending drop of 9.3% in FY15, TISCO’s FY16 loan growth target range is set at 0-2% due to slightly raised new car sales this year and a higher penetration rate of HP loans for new cars to 10% from 9% last year. Also, the lender introduced its new retail car collateralized loan product (Somwang flash cash in late FY14). So far, the products have received a warm welcome, with 50% growth last year to Bt6bn. We view that our loan growth forecast of 3% is promising and on par with TISCO’s guidance. Mr. Chatri said that he expected HP loans to stay flat in FY16 after loan contraction of about 9% last year. TISCO believes that nationwide new car sales for FY16 could see small growth after dropping about 11% in FY15.

Lower FY16 LLP setting policy offers upside to earnings

With an adequate loan-loss-coverage ratio of 80% and a low NPL/loan ratio of 3.2%, TISCO guides that its LLP will decline YoY in FY16 to 1.4% of gross loans (in tandem with better asset quality and small loan growth). We maintain our LLP assumption for FY16 at Bt3.7bn (down 30% YoY). Note that TISCO’s FY15 credit cost was 2.5% of YE15 gross loans and we forecast that its 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. TISCO does not plan to build its heavy reserve to 110-120% immediately because its loan are backed by adequate collateral (60-70% of loan value). Presently, its loan-loss-coverage ratio of TISCO is 80% and we expect its ratio could be 100% at YE16.

NIM to dip slightly in FY16 … but will still be higher than our forecast

TISCO believes that market interest rates are in no hurry to rise in 1H16 and 3Q16 due to economic recovery that was slower than expected. Besides that, the lender plans to augment its concentration on high-yield loans—personal loans (Somwang flash cash and motor cycle loans) and small SME business—to strengthen its NIM. These strong NIMs could offset its low loan growth this year, management communicated. Note that we forecast NIMs of 3.4% for FY16 after TISCO delivered good FY16 NIM of 3.7%. If TISCO is able to deliver higher FY16 NIM than our forecast number, this could imply scope for upsides to its FY16 bottom line.