TISCO Financial Group

TISCO Financial Group Plc  

 

Investment thesis

We attended TISCO’s analyst meeting yesterday, hosted by chief financial officer Chatri Chandrangam. His guidance indicated that the bank holding company felt less impact from its extra loan-loss provisioning (LLP) for Sahaviriya Steel Industry (SSI) in 3Q15 and that the firm’s operations could return to normal from 4Q15 onwards. Our SELL rating stands, premised on: 1) a poor outlook for the HP business in 2H15 and 1H16, 2) the rising LLP trend in 4Q15 and FY16, which could mean possible downsides to our earnings forecasts and 3) rising competition next year for SME and corporate lending.

Extra provision for SSI to be offset by cost control

TISCO plans to set aside LLP of Bt1.4bn for the SSI debt in 3Q15 over the normal LLP level of Bt500m. The firm plans to mitigate such action through staff-cost reduction, normal LLP cuts, and rising NIM and other extra income. Such activities could allow the firm to experience less impact on its 3Q15 earnings performance. We believe that the firm has tried hard to build investor confidence through managing its bottom line in 3Q15. Note that the firm’s extra LLP for SSI is on par with our FY15 earnings forecasts. Thus, we keep our FY15 and FY16 earnings forecasts as they stand.

FY15 loan growth target will have a downside risk

TISCO’s management believe that its FY15 loan growth will have a greater chance to drop below 5% after the firm plans to write off Bt3.4bn for SSI (UK) in 3Q15. We view that the firm might come up with a higher-than-modeled loan contraction. Note that we forecast that TISCO will have a loan contraction of 10% in FY15 before rising 6% next year. During 8M15, its net lending was down 13% YoY, which is far above our forecast.

Expect 3Q15 earnings to drop 17% YoY and 10% QoQ

We forecast that TISCO will deliver 3Q15 profit of Bt900m, down 10% QoQ and 17% YoY. This could be attributable to extra LLP to manage the SSI case as mentioned. We expect that TISCO will utilize its loan-loss cushion, better NIM and operating cost cuts to minimize the impacts of the large LLP. We expect it will have a 3Q15 NIM of 3.8% from 3.4% last quarter, an operating cost cut of Bt400m and a normal LLP cut of Bt400m. Note that we calculate pre-provision-operating profit (PPOP) to rise 25% YoY and 22% QoQ to Bt2.9bn in 3Q15, boosted by OPEX cuts and rising NIMs.