TISCO Financial Group

January net lending remained good

TISCO Financial Group Plc (TISCO)

Investment thesis

We maintain our BUY rating on TISCO, premised on: 1) consensus-beating loan growth, 2) good asset quality management with a big loan loss cushion ratio and 3) strong fee income expansion. These factors will push up the firm's profitability substantially in 1Q13—we also see scope for FY13 earnings upside if loan growth were to exceed our expectation and from a well-managed NIM.

January net lending was strong—up 1.9% MoM, led by corporate

TISCO's net lending amounted to Bt248bn in January, up by 1.9% MoM and 35.5% YoY. The January net loan number augers well for the year as a whole; we currently assume FY13 lending expansion of 17%. TISCO's corporate loans grew 5.1% MoM in January (boosted by a loan to a single client, not yet specified), followed by retail at 1.9% and SME at 1.9%. We expect the bank holding company to sustain lending momentum in February and beyond, as major automobile makers have ramped up production to meet strong consumer demand for the remaining backlog of new cars ordered last year under the government's first-time car buyer tax rebate scheme.

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 it is considering cutting its dividend payout ratio from 50percent for FY12 to 45percent for FY13 in order to preserve its capital base. Management doesn't intend to raise new capital, so long as 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. Besides, we expect its FY13 loan growth to slow to 17percent from the blistering 34.4% posted for FY12.

NIM may inch up in FY13 with expansion of high-yield loan business

Lending growth in FY13—particularly SME and HP—should enable TISCO to sustain its NIM at 3%. 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 keep its NIM high 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).

The bank holding company guides that the composition of its new car-to-used car HP lending will change from 70:30 in FY12 to 65:35 this year. Note that the yield on used car HP is typically 300 basis points fatter than the yield on new car HP.