Tisco Financial Group
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4Q14 profit was in line with our model Overweight
Tisco Financial Group Plc (TISCO)
4Q14 profit as expected
TISCO reported 4Q14 earnings of Bt1,242m, up by 65% YoY and 13% QoQ. The result was 3% below our number but 9% above the Bloomberg consensus. Pre-provision operating profit (PPOP) was Bt2.46bn, up by 2% YoY and 4% QoQ. FY14 earnings comprise 99% of our FY14 forecast of Bt4.3bn.
Results highlights
Lending dipped 4.4% QoQ, roughly in line with our estimate. Disaggregated by category, retail loans (chiefly HP for vehicles and motorcycles) slipped 6.0% QoQ, and SME business declined 2.8% QoQ. Likewise, corporate lending was down 3.4% QoQ, with the slippage particularly noticeable among manufacturers and retailers. 4Q14 NIM dipped by 14 bps QoQ to 3.05%, led by loan portfolio shrinkage (but was up sharply from 2.58% in 4Q13, attributable to the cost of funds falling faster than lending rates).
TISCO set much lighter loan loss provisions of Bt883m for 4Q14, down by 45% YoY and 23% QoQ, which reflects far shallower losses on repossessed vehicles during the quarter. We had expected the bank holding company to set LLPs of Bt956bn. Its stated NPLs/loans ratio rose to 2.57% at YE14 from 2.35% three months earlier. The loan loss coverage ratio was 103% at YE14 down slightly from 106% at end-September. Note that 4Q14 fee income was Bt1.24bn, up 1% YoY but down 3% QoQ.
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?
Our FY15 earnings forecast stands at Bt4.75bn. We also expect 1Q15 profit to rise QoQ, driven by lighter loan loss provisioning and the resumption of loan growth.
Recommendation
SME, corporate and personal loans should all rise this year, given that the economy is improving (albeit at a slower rate than was earlier hoped). We also expect TISCO’s LLPs to decline in FY15 by 11%. Given the better outlook, we have re-rated our YE15 PBV valuation peg from 1.2x to its long-term mean of 1.45x, which makes for a YE15 target of Bt51. Thus, we have upgraded our rating from HOLD to TRADING BUY.
