TISCO Financial Group

TISCO Financial Group Plc (TISCO)

Investment thesis
We maintain our BUY rating on TISCO, premised on: 1) scope for loan growth upside, 2) good asset quality management (the lowest NPLs/loans ratio in the sector of 1.3%), 3) strong fee income growth (especially fees related to loans and the capital markets) and 4) CAR expansion from 13.6% to 14.5% after successful capital-raising. These factors will enable TISCO’s core earnings to set new records in FY13 and FY14. We forecast an FY13 net profit of Bt4.8bn, up 29.5% YoY.
Good loan growth through 2Q13
2Q13 lending expansion of 5% QoQ is assumed, led by the government’s first-time car buyer tax rebate scheme (the vehicles must be delivered by end-June). Note that TISCO’s 5M13 net lending jumped 11% YTD and 35% YoY.  We also expect its 2Q13 NIM to inch up QoQ to 2.90% from 2.88% the previous quarter, in line with loan growth.
Lower QoQ loan loss provisions
Given strong lending expansion and good asset quality management, we assume 2Q13 loan loss provisions of Bt563m, down by 4% YoY and 40% QoQ (after TISCO set loan loss provisions for counter-cyclical risk in 1Q13). Note that management plans to set a credit cost equal to only 1.1% of gross loans in 2Q13, down from 1.5% the previous quarter. We forecast FY13 LLPs of Bt2.5bn, up 30% YoY. Its NPLs/loans ratio should remain at 1.3% at end-June, flat QoQ.
Greater scale has enhanced efficiency
We expect TISCO to post a 2Q13 cost/income ratio of 43.5%, down from 46.8% for the corresponding period last year. Fee income should report a jump of 39% YoY, driven by loan-related fees, bancassurance commissions and securities brokerage fees. Note that TISCO’s FY12 fee income shot up 44% YoY. We expect much more modest fee income growth of 19% for this year.
Expect strong 2Q13 profit growth of 28% YoY
Earnings should post expansion of 28% YoY and 2% QoQ to Bt1.2bn for 2Q13, driven by lending, a sustainable NIM, well-managed OPEX and a lower headline corporate tax rate of 20% (down from 23% in 2012). We also expect further QoQ profit growth in 3Q13, led by moderate loan growth (chiefly used car HP and SME loans).