TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
We reiterate our BUY rating on TISCO, premised on: 1) a consensus-beating lending growth profile, 2) strong fee income growth (from both the capital markets and loan-related fees), 3) excellent asset quality management and 4) an adequate CAR of 14% (9.4% Tier-1 including the recent capital-raising via TSRs). We expect core earnings to rise substantially QoQ in 2Q13 in tandem with lending growth, rising fee income, a sustained NIM and lower loan loss provisions.   
TISCO upgrades FY13 loan growth guidance to 20%
The strong 1Q13 lending growth of 7.4% QoQ and 37.1% YoY for 1Q13 prompted management to up its FY13 loan growth guidance to 20% from 15%. Lending will be driven by retail and SME business in 2Q13 and should be a similar rate of expansion as for 1Q13. There is still a substantial backlog of vehicles to deliver under the govt’s first-time car buyer tax rebate (the delivery deadline is end-June). We maintain our FY13 loan growth projection at 22% and assume a NIM of 2.9%.
Quarterly LLPs will be lighter in Q2 2013 and beyond
Management said the heavy loan loss provisions of 940m set for 1Q13 included a counter-cyclical provision of Bt365m. During 1Q13, TISCO allocated extra income of Bt210m from bancassurance product sales commissions and a trading gain of Bt171m to counter-cyclical provisions. The bank’s normal FY13 provisioning is pegged to a credit cost of 90-100 bps of total loans. As such, its provisioning for the remaining nine months of the year will be much lighter than for 1Q13 (the implied credit cost for that quarter was 128 bps).
We have raised our FY13 LLP assumption from Bt2bn to Bt2.5bn to fine-tune for the heavy 1Q13 provisions. Our other income (extra gains, noted above) assumption for FY13 increases to Bt700m from Bt300m.
SSI debt concerns have eased following recapitalisation
After successfully raising Bt12bn in new capital in February 2013, Sahaviriya Steel Industries (SSI) rescheduled its debt repayment obligations with creditors. The repayment period for Bt14.7bn in debt was extended by another three years. Thus, we no longer worry that SSI will default on its syndicated loan, at least not in the foreseeable future. Note that TISCO’s exposure to the SSI loan is Bt3.9bn (the total syndicated loan is Bt30bn, including SSI UK).
Under the worst-case scenario where the SSI debt turns sour, TISCO’s loan loss coverage ratio would drop from 167% at end-March to 140%, which would still be high, given that the Bank sector mean coverage ratio was 118% at end-March 2013.