TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
We reiterate our BUY rating on TISCO, premised on: 1) consensus-beating loan growth, 2) good asset quality management with a big loan loss cushion ratio and 3) strong fee income expansion. These factors will push up the firm’s profitability substantially in 2Q13—there would also be scope for FY13 earnings upside if loan growth were to exceed our expectation and from a well-managed NIM.
May net lending was strong—up 1.9% MoM, led by SME & corporate
TISCO’s net lending amounted to Bt270bn in May, up by 1.9% MoM and 11% YTD. The May net loan number augers well for the year as a whole; we currently assume FY13 lending expansion of 22%. TISCO’s corporate loans grew 2.1% MoM in May (boosted by a loan to a single client, not yet specified), followed by retail at 1.5% and SME at 2.1%. We expect the bank holding company to sustain lending momentum in June, as major automobile makers have ramped up production to deliver the remaining backlog of new cars ordered last year under the government’s first-time car buyer tax rebate scheme.
Capital remains adequate for FY13
The capital adequacy ratio (CAR) of 13% (Tier-1 9%) should be sufficient to accommodate lending growth this year after TISCO raised Bt1.5bn in new capital in April 2013. We had already assumed this in our model. Besides, we expect its FY13 loan growth to slow to 22% from the blistering 34.4% posted for FY12.
NIM may inch up in FY13 with expansion of high-yield loan business
Lending growth in FY13—particularly SME and HP—should enable TISCO to sustain its NIM at over 3%, said management. The bank holding company plans to increase its emphasis on high-yield loans (used car HP, personal loans and small SME business) in order to keep its NIM high this year. We conservatively assume NIMs of 2.9% in FY13 and 3.0% next year. TISCO expects the BOT’s policy interest rate to remain at 2.50% throughout 2013.
The bank holding company guides that the composition of its new car-to-used car HP lending will change from 70:30 in FY12 to 65:35 this year. Note that the yield on used car HP is typically 300 basis points fatter than the yield on new car HP.