Tisco Financial Group

Tisco Financial Group Plc (TISCO)
 

What’s new? We attended TISCO’s meeting yesterday. Management guided that the bank is likely to surpass its FY12 loan growth target range of 15-20%, due to the scale of the new car sales recovery and because of increased SME and corporate lending. Its 2Q12 NIM will flattish QoQ, squeezed in YoY terms by more intense competition, the BOT’s new levy on B/Es and greater corporate lending, which pays low yields. Management also said LLPs will rise QoQ in 2Q12—provisions in 1Q12 were pegged to a credit cost of only 60 bps. TISCO’s LLP policy for FY12 is a credit cost peg of 70 bps (but down from 80 bps last year).
Loan target has scope for upside: Our 18% lending expansion forecast for FY12 is relatively conservative in comparison with TISCO’s annualized 1Q12 lending growth of 21%. Its diversification into SME and corporate business in tandem with govt stimulus spending should provide opportunities for upside to its 15-20% target range.  
NIM squeeze the main threat to profit growth: TISCO may see strong loan expansion this year, but it faces substantially higher funding costs as a result of the BOT’s new 0.47% levy on bank-issued B/Es and short-term debentures, effective Jan 2012. Note that the BOT previously charged a 0.40% fee and only on bank deposits; it now charges 0.47% on both deposits and fixed-income funding of tenors of less than five years. That means NIM squeeze in the short- to mid-term. The bank may be able to reduce its reliance on fixed-income funding later this year.
At end-March 2012, B/Es and short-tenor debentures comprised 65% of its funding mix. We assume an FY12 NIM of 3.12%, down from 3.6% last year.
Action: Given disappointing 1Q12 results and anticipation of weak 2Q12 earnings, due to NIM squeeze and heavier LLPs, we do not expect the stock to perform very well in 2Q12—TISCO’s funding is short-term in nature, while its HP business (67% of its loan portfolio) is charged at flat rates, typically for periods of 24 months. Our HOLD rating stands.