TISCO Financial Group

TISCO Financial Group
3Q13 numbers as expected
TISCO announced 3Q13 earnings of Bt1.13bn, up 19% YoY but down 2% QoQ. The result was in line with our number, but 3% below the Bloomberg consensus. Pre-provision operating profit (PPOP) jumped 31% YoY (but was flat QoQ) at Bt2.15bn. 9M13 earnings jumped 27% to Bt3.44bn, which represent 75% of our FY13 forecast of Bt4.6bn.
Results highlights
Lending grew by 2% QoQ and 24.9% YoY—in line with our numbers. Disaggregated by category, retail loans rose by 2.7% QoQ and corporate loans by 1.4% QoQ. However, SME lending contracted 4.9% QoQ, due to weak demand for credit among car dealerships. The 3Q13 NIM was 2.88% (down slightly from 2.90% in 2Q13).
TISCO set heavy loan loss provisions of Bt778m for the quarter, down 4% QoQ but up 46% YoY, which to some extent reflects swift loan expansion. But we had expected the bank holding company to set LLPs of only Bt680m. Its NPLs/loans ratio rose slightly to 1.47% at end-September from 1.45% at end-June. The loan loss coverage ratio declined to 136.1% at end-September from 145.3% at end-June, due to bad debt write-offs. Note that 3Q13 fee income increased 15% YoY to Bt1.22bn (we had assumed only 12.5% YoY growth), which fully offset the effect of bigger LLPs than modeled.
Outlook
We expect TISCO to report normalized HP lending growth in 4Q13, driven by high season for new car sales and personal loans using cars as collateral. Furthermore, other high-yield loan operations will expand this year, especially mini/micro SME lending (corporate lending is also targeted for stronger growth). Thus, we expect a good FY13 performance. We assume 22% loan growth for the year (TISCO guides for only 15-20%).
What’s changed?
Our model indicates FY13 earnings of Bt4.6bn. As noted above, 9M13 profit represents 75% of our full-year forecast.
Recommendation
TISCO justifies a BUY rating, based on our projections for loan growth and earnings. There doesn’t appear to be much downside risk to our FY13 and FY14 profit forecasts, as the bank holding company plans to cut loan loss provisions further in 4Q13 (after setting extra provisions for counter-cyclical risk during 1H13). We expect it to set new records for loans and earnings for 4Q13 and next year.