Tisco Financial Group

Tisco Financial Group Plc (TISCO)
 

What’s new? TISCO’s net lending came to Bt199bn in May, up by 3.1% MoM, 10.4% YTD and 19.1% YoY. Its 5M12 net loan growth was in line with the rate necessary to achieve our FY12 projection of 18% YoY. We anticipate further lending expansion in June and beyond, as major automobile makers have ramped up production to make up for production and sales lost as a result of the 4Q11 flooding.
The end-May loans-to-deposits (plus borrowing) ratio stood at 107% at end-May, unchanged MoM, as the effect of a 38.8% MoM jump in deposits was offset by a 9.2% MoM drop in borrowing (led by a dive in B/Es) and loan growth. Note that at end-April B/Es accounted for 68% of the funding mix; at end-May that proportion had dropped to 57%.
FY12 loan growth forecast looks achievable:  Our 18% lending expansion projection for FY12 stands unchanged. It is relatively conservative, given TISCO’s annualized 5M12 lending growth of 19.1%. Rising GDP, boosted by government stimulus spending, will provide further opportunities for the bank holding company to expand its corporate and SME lending (and fee income related to loans). 
Corporate led growth: We expect TISCO to deliver better QoQ earnings for 2Q12, led by loan growth. In May, its corporate lending portfolio expanded by 7% MoM, followed by SME at 2.0% MoM and retail at 2.0% MoM. The scale of lending growth should mitigate the effect of rising funding costs. We expect a 2Q12 NIM of 3%, up 10bps QoQ.  
Action: Lending and earnings growth should support TISCO’s share price. Management claims that the syndicated loan to Sahaviriya Steel Plc (granted by TISCO, SCB and KTB) to acquire a billet plant in the UK remains performing (there had been market rumors that it was “troubled”). We aren’t concerned about TISCO’s asset quality (its NPLs/ loans ratio is 1.4% and it has a big loan loss cushion ratio of 160%). However, we suspect the bank might set heavier 2Q12 LLPs than we earlier our modeled. We rate TISCO a HOLD with a YE12 target price of Bt42.75, pegged to a PBV of 1.7x.