TISCO Financial Group

3Q14 profit was 8.9% above our forecast

TISCO reported 3Q14 earnings of Bt1,089m, down 4% YoY but up 10% QoQ. The result was 8.9% above our number and 3% over the Bloomberg consensus, attributable to a bigger investment gain than modeled. TISCO posted a 3Q14 investment trading gain of Bt96m; we had assumed only Bt15m. Its pre-provision operating profit (PPOP) was Bt2.35bn, up 9% YoY but down 1% QoQ. 9M14 profit comprises 70% of our FY14 forecast of Bt4.3bn.

Results highlights

Lending slipped 2.0% QoQ—broadly in line with our estimate. Disaggregated by category, retail loans (such as personal loans collateralized by vehicles and auto and motorcycle HP, etc) dipped 1.4% QoQ and SME business fell 11.6% QoQ. However, corporate lending grew 0.6% QoQ, led by demand among manufacturers and the Commerce sector. 3Q14 NIM fattened 14 bps QoQ to 3.19% (up sharply from 2.88% in 3Q13), attributable to the fact that the cost of funds declined faster than lending rates.

TISCO set heavy loan loss provisions of Bt1.15bn for 3Q14, up by 48% YoY (but down 6% QoQ), which to some extent reflects the prevailing economic uncertainty and fallout from the unfavorable environment that prevailed in 2H13 and 1H14. We had expected the bank holding company to set LLPs of Bt1.2bn. Its stated NPLs/loans ratio rose to 2.35% at end-September from 2.27% three months earlier. The loan loss coverage ratio inched up to 106% at end-September from 105% at end-June. Note that 3Q14 fee income grew by 4% YoY and 1% QoQ to Bt1.27bn.

Outlook

Management recently guided for total loan growth of 5% this year, driven by corporate and SME business. We see some downside risk to that target.

What’s changed?

We currently expect 4Q14 earnings to rise QoQ, driven by lighter loan loss provisioning. 

Recommendation 

SME and corporate business should rise in 4Q14 onward, assuming that private investment starts to pick up later this year. That would open space for a lending recovery in FY15. We also expect TISCO’s LLPs to decline in 4Q14 onward. The bank holding company’s YE15 PBV of 1.2x is below its long-term mean of 1.4x. But the current environment doesn’t favor TISCO’s area of specialist expertise, HP for automobiles. Our HOLD rating stands.