Tisco Financial Group

We have revised down our TISCO FY11 and FY12 earnings forecasts by 4% and 8%, respectively, to Bt3.4bn and Bt3.7bn because of diminished expectations for lending growth as a result of heavy flooding and the risk of fallout from weak US and EU economies affecting Thailand next year. We have cut our FY11 and FY12 loan growth assumptions to 23% and 8%, respectively, from 25% and 12%. Given our pared-back expectations for the future, we have reduced our YE12 target price from Bt53 to Bt44 (down 17%), based on a justified YE11 PBV of 1.7x.
Estimate 3Q11 loan growth of 3% QoQ: Strong retail business and used car refinancing (TOP-UP) led portfolio expansion in 3Q11. As such, we expect TISCO to deliver 3% QoQ and 19% YTD loan growth for 3Q11, which would be in-trend with our new FY11 lending forecast of 23%. Management said that the recent flooding hasn’t had much impact on business. 
Declining provisioning in 3Q11: With the highest loan loss coverage ratio in the sector of 162%, TISCO indicated that loan loss provisioning would decline in 2H11. We expect the bank to set 3Q11 provisions of Bt280m, down 15% QoQ.
Interest spread dipped with lending diversification: Lending diversification into SME and corporate business (which yields lower returns than HP and most other types of retail loans, except mortgages) will probably squeeze TISCO’s interest spread to 3.69% in 3Q11 from 3.84% the previous quarter. 
Anticipate moderate 3Q11 earnings: We estimate a 3Q11 net profit of Bt870m, up 19% YoY but flat QoQ. The YoY bottom-line growth is due to lending expansion (which could offset the effect of a softer NIM), higher fee income and lower loan loss provisioning.