TISCO Financial Group

TISCO Financial Group Plc (TISCO) 

 

Misses our estimates by 13% on precautionary provisions. 1Q15 net profit rose 1% YoY but dipped 16% QoQ to Bt1bn as the bank made one-off precautionary provisions of ~Bt300mn to provide a cushion against economic volatility. Credit cost rose to 2% (1.5% if no extra provisions) in 2Q15 from 1.53% in 1Q15. NPLs by amount rose 6% QoQ, bringing NPL ratio to 2.86% at 2Q15 from 2.65% at 1Q15. LLR coverage inched up to 107% at 2Q15 from 105% at 1Q15. Loan growth continued contracting (-2% QoQ), with auto loans continuing to be a drag. As a result of draining excess liquidity, NIM rose 17 bps QoQ from both easing cost of funds (-12 bps QoQ) and rising yield on earning assets (+4 bps QoQ). Non-NII slid 6% QoQ on smaller investment gain. However, fee income rose 5% QoQ, driven by investment banking and asset management fees.   

Slight cut in forecast and TP. We cut 2015F earnings by 3% and target price to Bt53 (1.4x mid-2016F BVPS) from Bt54, after factoring in the Bt300mn extra provisions and cut our loan growth forecast to -8% from -2% (vs. -5% YTD). 1H15F earnings accounts for 48% of our revised full-year forecast. We expect growth in 2H15 and 2016 to be fuelled by lower provisions on lower losses on repossessed cars and no extra provisions.  

Valuation over-penalized. We maintain Buy on TISCO. It is trading at a deep discount to valuation at 8x PER despite the fact that earnings are recovering in tandem with easing provisioning needs as losses on repossessed cars fall, plus improving NIM from lower cost of funds.