Tisco Financial Group

Tisco Financial Group Plc (TISCO)

- 1Q14 profit to recovers due to lower provision
We estimate TISCO’s 1Q14 net profit at B1.02bn, growing 26.9%qoq but still
decreasing 11.5%yoy, which comprises 22% of our FY2014 net profit forecast. The
contribution is a 33.8%qoq decrease in debt provision in 1Q14 (yet increasing
13.6%yoy). Credit cost is projected to drop to 150bp from 221bp in 4Q13, versus
FY2013 average of 142bp. However, the estimated credit cost is still higher than
TISCO’s policy rate of 120bp for FY2014. This is in line with an increase in NPL from
used-car leasing in 1Q14, though not as drastic as in 2H13. Excluding the item, the
normalized profit in 1Q14 would remain weak, possibly slumping 10.9%qoq because
fee income is anticipated to drop 3.3%qoq following decreasing transactions. Net
interest income is projected to stabilize from the prior quarter because net loans
would contract 2.5%qoq since repayment of car leasing loans has been larger than
new loan issuance. High repayment has been seen from corporate clients as well
because of decreasing confidence amidst the political turmoil. SME loans (floor plan)
have also decelerated for a whilel; only auto cash loans could show impressive
growth. 1Q14 NIM is projected to decrease by 4bp to 2.67% because funding cost
has increased following growing deposit base. Moreover, operating expense in 1Q14
is anticipated to increase 12.3%qoq because personnel expense has returned to
normal (continuous bonus provision).
- Await recovery in 2H14, most quickly among peers
We maintain our earnings forecast for 2014, expecting the full year net profit growth
of 10.2%yoy. Despite dull performance in 1H14 as a result of the sluggish economy,
the business is projected to rebound in 2H14 if the political situation improves in
1H14. We believe TISCO would show the quickest recovery among peers because its
used-car leasing portfolio is smaller than peers and the Motor Show exhibition held
during 26 March to 6 April 2014 would help to boost new car sales in the system,
thus regaining TISCO’s loan growth since 2Q14 onward.
- Buy for dividend. PBV lower than 10-year average. Dividend yield over 6-7% p.a.
We reiterate to buy TISCO. The business has lacked stimulus in the short term, but
the share price has substantially absorbed the issue. TISCO’s strong points are its
small business size which provides flexibility for rapid business adjustment, strong
capital base, and already high debt provision when compared with other small banks.
The current share price has PBV of only 1.3x, lower than the 10-year average of
1.8x. 2014 fair value is B47.41, at 1.5x PBV and under long-term ROE forecast of
19%, which implies 24% upside. Average dividend yield is estimated at 6-7% p.a. in
2013-2015 (paying annually).