TISCO Financial Group

Lending and profit forecast upgrades

TISCO Financial Group Plc (TISCO)

Investment thesis

We have revised up our FY13 and FY14 loan growth projections to 22% and 17%, respectively from 17% and 14%, based on new guidance from TISCO as to its outlook. At the analyst meeting yesterday, management claimed that the bank holding company would achieve YTD loan growth of 5percent for 2M13, so even accounting for a HoH decline in HP for new cars in 2H13, loan growth for the full year should exceed 20% (it had previously guided for FY13 loan growth of only about 15%). The blistering pace of lending has made a cash call necessary. Hence TISCO's announcement yesterday that it will raise Bt1.8bn through the issuance of 73m units of Transferable Subscription Rights (TSRs).

Because of the expanded expectations for lending growth, we have raised our earnings forecasts by 4.4% to Bt4.8bn for FY13 and by 7% to Bt6bn for FY14. We calculate TISCO's post-TSR exercising CAR at 14% (10% Tier-1). Our YE13 target price rises 14% to Bt66, pegged to justified PBV of 2.3x (based on ROE of 21%, Ke of 12.1% and industry growth of 5%).

Capital-raising details

On April 30, TISCO will issue 73m units of TSRs at a ratio of 10 existing shares-to-one new TSR (10:1). Subscribers can exercise TSRs at a ratio of one TSR-for-one TISCO share at a price of Bt24. Note that the TSRs will expire within one month of issuance. Ahead of expiry, the TSRs will trade on the SET. TISCO also announced an FY12 DPS of Bt2.4 (roughly equal to the funds it plans to raise through the TSR issue). The date for both the XR and the XD is April 30, 2013.

Capital increase to enable stronger loan growth than earlier expected

Management is more bullish about the 2013-15 GDP growth outlook and its own lending profile, so devised the TSR issuance plan in order to enable it to benefit optimally by expanding its lending capacity. Its CAR will rise from 13% to 14% (Tier-1 from 9% to 10%). TISCO guides that loan growth this year will be driven by the SME category and HP for used cars, led by lending in the provinces.

Based on the new guidance, we have revised up our lending expansion projections to 22percent for FY13 and 17percent for FY14 from 17% and 14%, respectively.

New earnings growth could offset the dilution effect

Given greater expectations for loan growth, we have revised up our earnings forecasts by 4.4% to Bt4.8bn for FY13 and by 7% to Bt6bn for next year. The extra lending enabled by the capital increase offsets the 9% dilution effect of the exercising of the TSRs over the two years. There is also scope for upside to our forecast, we believe.