Tisco Financial Group

Tisco Financial Group Plc (TISCO)

- 2014 to focus on retail loans. Car leasing business to stabilise in 1H14
TISCO projected total net loan growth in 2014 at 10-15%yoy, a long-term target,
though weakening from 2013 target at 15-20%yoy as a result of decreasing growth of
car leasing loan to 10%yoy, compared with 14.4% YTD in 9M13, because the first car
scheme had ended and the bank had slowed down used-car leasing loan issuance
after NPL rose to 5% of total loan, versus a normal level of 3%, since used-car price
has dropped by 20-25%. However, the care price has begun to stabilize now, so NPL
from used car would also be steady. In 2014, TISCO would focus on other retail loans
(7-8% of total loan), which are projected to generate continuously strong growth
from 30%yoy targeted in 2013, as well as corporate loans that are anticipated to
grow 15-20%yoy (only 17% of total loan) due to benefits from the government’s
investment projects starting since 2014 onward. Only SME loans would decline from
2013 because the bank has become stricter in granting loans for floor plan
entrepreneurs, while stock release of those entrepreneurs are still delayed, affecting
the liquidity. TISCO anticipated this sluggish situation to continue until 1H14, which
would thus push the bank’s credit cost to 120bp, higher than the average of 110bp.
In terms of fee income, the bank has foreseen growth from transactions related to
deposit clients for cross selling instead of loan-client-related transactions like
insurance, life insurance, and mutual fund selling.

- Maintain forecast. 4Q13 to stabilize from 3Q13. Recovery foreseen in 2H14
We maintain our earnings forecast for FY2013. Although 9M13 earnings already make
up 80% of our full-year forecast, we are convinced that 4Q13 earnings would stabilize
from 3Q13 under an assumption for a similar capital market situation like in the
previous quarter. However, if the situation is better than expected, it would boost the
fee income and profit from investment portfolio above our projection. For 2014, we
hold a neutral outlook as the growth in 1H14 would be flat before it shows a recovery
again in the second half of the year. TISCO has confirmed a ROE of not lower than
20% and dividend yield close to that of the prior year.

- Buy for dividend. PBV lower than 10-year average. Div yield over 6-7% p.a.
We reiterate to buy. The share price has substantially reflected a lack of short-term
supporting factor comparing to 1H13. Moreover, TISCO’s strong points are its position
as a small bank which provides the bank flexibility for a rapid strategy change and its
strong capital adequacy ratio and higher debt provision than other small banks. The
current share price has only 1.5x PBV, lower than 1.8x on average in the past ten
years. Although the current price has only 5% upside left, the new upside when
compared with FY2014 fair value at B47.71 (at 1.56x PBV and under long-term ROE
forecast of 19.5%) is as much as 16%. Dividend yield is still expected high at 6-7%
p.a. in 2013-2015.