TISCO Financial Group

TISCO Financial Group Plc (TISCO)

 

Investment thesis

We have raised our earnings forecast by 5.6% in FY16 to Bt4.75bn and 2.1% in FY17 to Bt5.0bn. This is attributable to our NIM raising by 20bps in FY16 and FY17 to 3.5% for both years. Yet, we cut our loan growth forecast to 0% from the former 3% in FY16 and 3% from 5% in FY17. This reflects that its lending policy will shift into high earnings asset yields. Given the upgrade, we have raised our YE16 target price to Bt52.00, pegged to a justified PBV of 1.35x (based on Ke of 12.5%, growth of 5% and ROE of 15%). We rate TISCO a BUY, based on: 1) a lower loan-loss-provisioning (LLP) trend in FY16-FY17, which means an upside to our earnings forecast, 2) its cheap PBV of 1.20x against a long-term mean of 1.45x and 3) an attractive FY16 dividend yield of 5.5% backs the share price.

NIM upgrade from well managed funding cost

TISCO believes that market interest rates are in no hurry to rise in 1H16 and 3Q16 from slower economic recovery than was expected. It also plans to raise its concentration on high-yield loans—personal loans (Somwang flash cash, motorcycles) and small SME business—to strengthen NIM. These strong NIMs could offset its low loan growth this year, we calculate. As such, we have raised our NIM forecast by 20bps to 3.5% in FY16 from the former 3.3% and by 20bps to 3.5% in FY17 from the previous 3.3% as well. If TISCO is able to deliver its FY16 NIM higher than our forecasts, this could imply scopes for upsides to its FY16 and FY17 bottom line.

Policy for lower FY16 LLP setting provides upside to earnings

With an adequate loan-loss-coverage ratio of 80% and a low NPL/loan ratio of 3.2%, TISCO guides that its LLP will decline YoY in FY16 to 1.4% of gross loans (in tandem with better asset quality and small loan growth). We maintain our LLP assumption for FY16 at Bt3.7bn (down 30% YoY). Note that its FY15 credit cost was 2.5% of YE15 gross loans and we forecast that its FY16 credit cost should drop to 1.5% of YE16 gross loans. A lower-than-modeled credit cost would mean scope for upside to our FY16 earnings forecast. TISCO does not plan to build a heavy reserve to 110-120% immediately because its loans are backed by collateral. Presently, its loan-loss-coverage ratio is 80% and we expect it could be 103% at YE16.

We cut FY16 loan to flat YoY from 3% on more conservative policy

After a lending drop of 9.3% in FY15, TISCO’s FY16 loan growth target range is set at 0-2% due to the slight rise in new car sales this year and the higher penetration rate of HP loans for new cars at 10% from 9% last year. Also, it introduced new retail car collateralized loan products (Somwang, in late FY14). So far, the products have received a warm welcomed and reported 50% growth last year to Bt6bn. We have conservatively cut our FY16 loan growth forecast to 0% from the former 3% to reflect that nationwide new car sales for the full year could show small growth after sliding 11% in FY15. This forces TISCO to diversify its lending focus to high yield loans such as Somwang and other personal loans.