TISCO Financial Group

Investment thesis

Assuming that the adverse impact of the First-time Car Buyer scheme eases by early next year, we expect HP lending (about 70% of total loans) to recover gradually in FY15. In 1H15, TISCO will focus on expanding its SME and corporate lending operations, which together comprise about 30% of loans. LLP-setting will decline moderately next year, boosting the bottom-line (possibly the biggest profit growth driver). TISCO currently trades at a cheap YE15 PBV of 1.2x against a long-term mean at 1.4x. Our HOLD rating stands.

FY14 lending guidance slashed from 5% growth to a contraction

Because of the prevailing weak car sales environment, TISCO says its earlier FY14 loan growth target of 5% is unachievable and it now expects a contraction of 2-4%. HP and SME (mostly for car dealerships) business slowed down substantially this year. Disaggregated by category, in FY14, the HP portfolio is now expected to slip somewhat more steeply than 4-5% and SME business may slide by 10-15%. However, corporate lending will rise by 5-10%, according to management. Hence, we have cut our FY14 lending assumption from growth of 6% to a contraction of 4%. We have also trimmed our FY15 loan growth forecast from 8% to 5%.

Loan loss provisions will ease in 4Q14 onward

Management guides that LLPs are likely to decline in 4Q14 onward, now that the HP business has stabilized. However, we have raised our FY14 LLP assumption by 15% to Bt4.5bn after 9M14 LLPs jumped 40% to Bt3.5bn. Note that our FY15 provisioning assumption stands unchanged at Bt4bn. Management anticipates that LLPs will be in the range of Bt900-1,000m/quarter next year. 

NIM assumptions raised to 3.05% for FY14 and 3.10% for FY15

9M14 NIM fattened to 3.00% from 2.89% in 9M13, boosted by funding cost management adjustments. We, thus, have raised our NIM assumptions by 28 bps for FY14 to 3.05% and by 23 bps for FY15 to 3.10%. The fatter NIM should mitigate or offset the effect of a heavier LLP assumption for FY14 and lending forecast cuts for this year and next. Given the expanded NIM assumptions, we maintain our earnings projections at Bt4.3bn for FY14 and Bt4.75bn for FY15.

Weak business profile = no need for new capital in FY15

Assuming single-digit loan growth and little business expansion on the horizon in FY15, TISCO believes that its current capital base is adequate for 4Q14 and FY15 operations. Its capital adequacy ratio at end-September was 16.2% of which Tier-1 comprised 12.2%. Management confirmed that TISCO will not raise new capital in FY15.