TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Q1 2013 earnings beat our forecast by 5% 
TISCO reported 1Q13 earnings of Bt1.15bn, up by 38% YoY and 16% QoQ. The result was 5% over our estimate and 6% above the Bloomberg consensus, attributable to greater fee income growth than modeled. Note that its net fee income for the quarter jumped by 67% YoY and 6% QoQ to Bt1.5bn (we had assumed only 25% YoY growth). Pre-provision operating profit (PPOP) rose by 70% YoY and 5% QoQ to Bt2.2bn. TISCO’s 1Q13 earnings equal 24% of our FY13 projection of Bt4.8bn.

Result highlight
Lending grew by 7.4% QoQ and 37.3% YoY—exceeding our estimate of 6% QoQ—driven by the retail (up 8.0% QoQ) and SME (up 15.1% QoQ) portfolios (corporate loans inched up 4.1% QoQ). TISCO’s 1Q13 NIM was 2.88% (close to our estimate of 2.89%), up 7 bps QoQ. The improved 1Q13 NIM was due largely to strong lending growth.
TISCO set heavy loan loss provisions of Bt940m for the quarter, up by 250% YoY and 76% QoQ, which reflects strong loan growth and management’s new counter-cyclical provisioning policy. Note that we had expected the bank holding company to set LLPs of only Bt500m. Its NPLs/loans ratio stood at 1.3% at end-March, up slightly from 1.2% at YE12. The loan loss coverage ratio also inched up to 167% at end-March 2013 from 165% at YE12.
Outlook
We expect TISCO to report further strong HP lending growth in 2Q13, driven by the government’s first-time car buyer tax rebate program (the deadline for qualifying car orders was YE12, but the delivery deadline is June 30, 2013). In addition to HP business, it will expand other high-yield loan operations this year, especially SME business. Thus, we expect a good FY13 performance. We maintain our lending growth forecast at 22% for this year (management guides for only about 15%). 
What’s changed?
Our FY13 earnings forecast stands unchanged at Bt4.8bn for the moment.
Recommendation
Given TISCO’s good 1Q13 earnings and bright outlook, we believe there is scope for upside to our FY13 profit forecast from stronger lending than modeled (which could boost its FY13 NIM) and greater fee income growth (partly from the securities business). We expect the bank holding company to post further lending and earnings growth in 2Q13 and beyond. Our BUY rating stands.