TISCO Financial Group

TISCO Financial Group Plc (TISCO)

 

In line with estimates, 1Q15 net profit rose 28% YoY but dipped 3% QoQ to Bt1.19bn. Loan growth again contracted (-6% QoQ), with auto loans continuing to be a drag. NIM was essentially stable QoQ. Non-NII continued gaining momentum with growth of 13% YoY and 3% QoQ, mainly driven by asset management fees. NPL by amount was stable QoQ. The QoQ hike in provisions was done to rebuild LLR coverage.  

Lower provisions, key earnings driver for 2015. Underwriting profit growth in 2015 will be lower credit cost (provisions/total loans) as provisions return to normal with the normalization of the used car market and used car loans. Market prices for used cars stabilized in 2014 after plunging 30-40% in 2012-2013. We note that nearly all used car NPLs came from loans extended in 2012 and 1H13, which means that borrowers have paid off more than half their loans. TISCO expects a material fall in credit cost in 2015 to below 1.5%, still below its normal 1.2%. We expect its credit cost to ease from 1.68% in 2014 to 1.45% in 2015F then to 1.3% in 2016F and return to normal at 1.2% in 2016.  

Cut 2015F loan growth to 1% from 3% to fine tune with 1Q15 results.   

Valuation over-penalized. We maintain Buy on TISCO. It is trading at a deep discount to valuation at 7.8x PER. We see this as market overreaction to the poor auto hire-purchase business, ignoring the fact that this arena is ready to come back to life.