TISCO Financial Group

February net lending up 2.4%

TISCO Financial Group Plc

Investment thesis

Our BUY rating stands, premised on: 1) consensus-beating loan growth, 2) 2) fee income expansion from the capital market and money market and 3) well-managed asset quality with the lowest NPLs/loans ratio in the sector of 1.2%. We expect TISCO's profitability to rise substantially in 1Q13 onward and a flow of lending growth upgrades among analysts, once 1Q13 loan numbers are announced. That would mean scope for FY13 profit upside.

February net lending was strong—up 2.4% MoM, led by SME

TISCO's net lending amounted to Bt254bn in February, up by 2.4% MoM and 36.3% YoY. SME loans grew 7.2% MoM (boosted by floor plan lending to car dealers), followed by retail at 2.2% and corporate at 0.2%. We expect the bank holding company to sustain strong lending momentum through March and beyond, as major automobile makers have ramped up production in order to supply the backlog of new 600K cars ordered last year under the government's first-time car buyer tax rebate scheme (which must be delivered by end-June).

Capital-raising to support FY13 expansion

Management is bullish about the 2013-15 GDP growth outlook and its own lending profile, so devised the transferable subscription rights (TSR) issuance plan in order to enable it to enlarge 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. We expect it to deliver FY13 loan growth of 22%.

NIM may inch up in FY13 in tandem with high-yield lending growth

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. Management expects the one-day Repurchase Rate to stay at 2.75% throughout 2013 (the managements of most of the other banks we cover expect further cuts to the Repo Rate).

TISCO guides that the composition of its new car-to-used car HP lending will change from 70:30 in FY12 to 65:35 in FY13. Note that the yield for used car HP is typically 300 basis points fatter than the yield for new car HP.