TISCO Financial Group

TISCO Financial Group Plc  

 

Investment thesis

We view that TISCO will still be undertaking a conservative lending policy with its growth rate of 1-4% in FY16 following loan contraction of 9% last year. We expect its full-year 2016 earnings drivers to derive from: 1) better lending activities from 4Q15 onwards, 2) a declining loan-loss-provisioning (LLP) trend in FY16 and FY17, which could mean an upside to our earnings forecast. Besides that, TISCO provides an attractive dividend yield of 5.0% in FY16 and 5.4% in FY17.

January net lending dropped 0.9% MoM from SME

TISCO posted January net lending of Bt230bn, down 0.9% MoM and 8.7% YoY. SME (mostly in floor plans) and retail loans declined 7.9% MoM and 0.4% MoM, respectively. Corporate loans grew 1.5% MoM. We also expect that this lending contraction trend will endure throughout February before picking up in late 2Q16 from corporate and retail loan demand and improving economic growth from accelerating budget disbursements and stimulus packages. We maintain our FY16 loan growth figure of 3%. 

LLP setting in FY16 to drop …

Although the lender’s asset quality situation has been improving from less NPL formation than the previous quarter and faster troubled debt restructuring processes. The firm’s management plans to keep its full-year LLP for 2016 at 1.3% of gross loans (or about Bt3.5bn, which is consistent with our forecast), about 34% below last year. We, thus, see seen scope for earnings upside if it sets provision below its targets.

… and NIM to dip slightly FY16, but still higher than our forecast

The group believes that market interest rates are in no hurry to rise in 1H16 and 3Q16 from slower economic recovery than was expected. Besides that, TISCO plans to raise its concentration on high-yield loans—personal loans (its Somwang flash cash and motorcycle loans) and small SME business—to strengthen NIM. These strong NIMs could offset its low loan growth this year. TISCO expects its FY16 NIM to drop slightly from last year. Note that we forecast NIMs of 3.4% for FY16 after TISCO delivers decent FY16 NIM of 3.7%. If the lender is able to deliver its FY16 NIM higher than our forecast number, this could imply scope for upsides to its full-year bottom line.