TISCO Financial Group

Good loan growth profile

TISCO Financial Group Plc (TISCO)

Investment thesis

We maintain our BUY rating on TISCO, premised on: 1) consensus-beating loan growth, 2) well-managed asset quality with a high loan loss cushion ratio and 3) strong fee income expansion. These factors will push up the firm's profitability substantially in FY13—we forecast that net earnings will jump 24% this year to Bt4.6bn.

TISCO is bullish about its prospects for FY13

The bank holding company targets FY13 loan growth of about 15%. We forecast loan growth of 17percent for this year. The emphasis is on the SME and retail categories. Note that its retail portfolios (90% of which is HP) represented 73% of total lending at YE12, followed by corporate at 17% and SME at 10%. TISCO aims to raise the used car loan proportion of its HP portfolio to 35% by YE13 from 30% at YE12. As such, the new car proportion of HP is expected to decline to 65percent from 70%.

Capital remains adequate for FY13

TISCO believes that its YE12 capital adequacy ratio (CAR) of 13% (Tier-1 9%) is sufficient to accommodate lending growth this year. Note that the bank holding company is considering cutting its dividend payout ratio from 50percent for FY12 to 45percent for FY13 in order to preserve its capital base. It doesn't intend to raise new capital, so long as its ROE remains above 20%. We had already assumed in our model that TISCO would cut its payout ratio to 35percent for both FY13 and FY14, which implies a CAR of 12.8% (Tier-1: 8.9%) at YE13.

Loan loss provisioning will be stable YoY

Given its greater focus on high-yield assets, TISCO expects its FY13 LLPs to be about the same as for last year. It has set a credit cost of 90-100 bps, up from 90 bps in FY12. TISCO currently has an excess loan loss reserve of Bt2bn. We, thus, maintain our FY13 loan loss provision assumption of Bt1.9bn. Note that the financial position of a big client, SSI, has improved somewhat following capital-raising in 4Q12, so currently doesn't appear to be at risk of default. TISCO has lending exposure of Bt3.9bn to SSI. It has so far set LLPs for SSI equal to only 6% of its lending exposure to the steel maker.

NIM may inch up in FY14 on high-yield loan business expansion

Retail lending growth in FY13—particularly SME and HP—should enable TISCO to sustain its NIM at 3% throughout this year. The bank holding company plans to increase its emphasis on high-yield loans (used car HP, personal loans and small SME business) in order to boost its NIM this year. Note that we assume NIMs of 2.9% in FY13 and 3.0% next year. TISCO expects the BOT's policy interest rate to remain at 2.75% throughout FY13 (the managements of most of the other banks we cover expect further cuts to the Repo Rate).