TISCO Financial Group

TISCO Financial Group Plc (TISCO)   

 

Investment thesis

Profit in 2Q15 as expected

TISCO reported 2Q15 earnings of Bt1bn, inching up 1% YoY (but shrinking 16% QoQ). The result was in line with our number but 14% lower than the Bloomberg consensus. Its pre-provision operating profit (PPOP) was Bt2.4bn, up 1% YoY and 8% QoQ. Its 2Q15 profit comprises 46% of our FY15 forecast of Bt4.75bn.

Results highlights

Lending slipped 2.2% QoQ (down 5.1% YTD)—broadly in line with our estimate. Disaggregated by category, retail loans (such as HP loans for autos and motorcycles) dipped 2.2% QoQ, and SME business fell 10.3% QoQ. Nevertheless, corporate lending rose 2.5% QoQ, driven by loan demand for manufacturers, construction and the commerce sector. NIM rose in 2Q15 by 12 bps QoQ and 32 bps YoY to 3.37%, attributable to the fact that the cost of funds declined faster than lending rates YoY.

TISCO set a lower loan-loss provision (LLP) of Bt1.24bn for 2Q15, a rise of 2% YoY and 28% QoQ, which reflects rising risk aversion amid economic uncertainty during the quarter. Its 2Q15 LLP setting was 20% greater than our estimate of Bt1bn. Its stated NPL/loan ratio inched up to 2.86% at end-June from 2.65% three months earlier due to lending contractions. The lender’s loan-loss-coverage ratio edged higher to 107% from 105% three months earlier. Note that 2Q15 fee income grew 6% YoY and 8% QoQ to Bt1.33bn despite a lending contraction of 2.2% QoQ.

Outlook

Management recently provided guidance for total loan growth of flat to -5% this year, pressured by slower new car sales and poor used car markets. Also, SME business (floor plans) remains weak. Note that we forecast TISCO to arrive at a loan contraction of 3%. 

What’s changed?

We maintain our FY15 earnings forecast of Bt4.75bn. We also currently expect 3Q15 earnings to climb YoY, driven by lower LLP setting and improved NIM.