Tisco Financial Group

Tisco Financial Group Plc (TISCO)

1Q13’s profit to grow 8.5%qoq, thanks to new car loans and securities
We estimate 1Q13’s net profit of TISCO at B1.09bn, making a new quarterly high by
growing 8.5%qoq and 33%yoy due mainly to following contributions. 1) Net interest
income is projected to grow 7.3%qoq and 34.2%yoy, in line with the net loan
growth in 1Q13 that is anticipated at 6%qoq and 35.3%yoy, very high compared with
our net loan growth forecast for FY2013 at 20%yoy. Despite a low season, gradual car
transfers according to the government’s first-car incentive would lead to continuous
disbursement of car hire-purchase loans. At the same time, corporate and SME loans
would also show impressive growth this year. 2) Income from other operations is
projected to grow 28%qoq and 88.9%yoy, mainly the securities business which
includes the brokerage fee income and profits from securities trading along with
brightening market conditions. At the same time, the bank’s market share of
institutional investors has still grown bigger after its full business cooperation with
Deutsche Bank. 3) NIM is anticipated to stay close to that of the previous week
at 2.81%. Although the overall yield would continue to decline due to a pressure from
the yield of new car loans, the stable funding cost would help sustain the NIM. 4) Cost
to income ratio is estimated to drop slightly to 48.34% from 49.53% in the
prior quarter even though the operating expense would remain quite flat from the
previous quarter due to the expense on the opening of 60 new Micro Offices in 2013 as
planned (to 100 offices in total) to use as a spearhead in granting retail loans such as
personal and car hire-purchase. On the other hand, the factors to suppress earnings
performance in this quarter are as follows. 1) Fee income is foreseen to decrease
15.6%qoq but increase 14.4%yoy because there is not the recognition of fee
income from great deals like in the previous quarter (IPO of VGI and capital raising of
PTTEP). 2) Debt provision is projected to stay quite flat from the prior quarter
with a credit cost at 85bp, which is equivalent to the policy level in 2013 set by TISCO,
but still increases from the average of 77bp in 2012.
However, overall, the positive factors still have more weight than the negative ones, so
they would help offset the adverse effects. Accordingly, net profit in 1Q13 would make
a new quarter high and comprise 25% of our FY2013’s net profit forecast.

- Strong business growth in line with stock dividend payment policy to keep capital
The capital raising (through the issuance of transferable subscription rights or TSRs for
72.79 million shares in the ratio of 10 existing shares to 1 convertible share at B24
each) for paying dividends to shareholders of TISCO at B1.74bn in total will cause a
dilution effect of around 10% of existing capital. As a result, EPS is 2013-2014 is
projected to decrease to 6.2%yoy and 14.1%yoy, respectively. However, we still have a
positive outlook toward TISCO capital management which is balancing between
dividend payment (high) and growth (to not too much limit the growth, reflecting from
more aggressive net loan growth in 1Q13). Moreover, the strong capital adequacy ratio
under Basel 3 has helped alleviate concerns toward future capital raising.

- Hold to received dividend. Fair value drops slightly. Upside is very limited now
We confirm our recommendation of “hold to receive dividend”. 2013’s fair value at
2.10x PBV (GGM) is B57.70 (based on long-term ROE forecast of 25%). The current
share price has around 12% upside. Recently, TISCO has announced 2012’s dividend
payment at B2.40/share or a dividend yield of 4.7% p.a. XD date is on 30 April 2013
and the payment date is on 23 May 2013.