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TISCO Financial Group

Profit forecasts cut, due to heavier LLP assumptions

TISCO Financial Group Plc (TISCO)

Investment thesis

We have revised down our TISCO profit forecasts by 4percent for FY14 to Bt5.1bn and by 8percent for FY15 to Bt5.7bn (our FY13 projection stands unchanged). The cuts were prompted by heavier LLP assumptions. Thus, our YE14 target price slips 5.2% to Bt45, pegged to an unchanged PBV of 1.4x.

Despite our lower profit forecasts, our BUY rating stands, premised on: 1) a cheap valuation (a YE14 PBV of 1.2x and the highest ROE in the Bank sector of 19.5%), 2) scope for loan growth upside (SME and corporate) in FY14, 3) good asset quality management (the lowest NPLs/loans ratio in the sector of 1.5% with a loan loss coverage ratio of 136%) and 4) generous dividend yields of 6.2percent for FY13 and 6.8percent for FY14.

Good loan growth through 4Q13

4Q13 lending expansion of 3.5% QoQ is assumed, with growth across the corporate SME and HP (high season for new car sales) categories. We expect the bank holding company to report a 4Q13 NIM of 2.73%, down slightly QoQ. Note that TISCO's 11M13 net lending expanded by 17% YTD and 21% YoY. We model for FY13 loan growth of 22%.

Heavier YoY loan loss provisioning

Given strong lending growth and good asset quality management, we assume 4Q13 loan loss provisions of Bt622m, up 17% YoY but down 20% QoQ (in 9M13, TISCO set extra provisions for counter-cyclical risk). Note that management plans to set a credit cost equal to 0.8-1.0% of gross loans for 4Q13, down from 1.5% in 9M13. Due to the prevailing political uncertainty, we have raised our LLP assumptions by 7% to Bt3.6bn for FY14 and by 16% to Bt3.9bn for FY15.

Cost/income ratio looks sustainable

We expect TISCO to post a 4Q13 cost/income ratio in the range of 43-44%, basically flat YoY. Fee income should report a jump of 20% YoY, driven by loan-related fees, bancassurance sales commissions and securities brokerage fees. We assume that 4Q13 non-interest income grew 22% YoY but dipped 1% QoQ. Fee income for FY13 should have expanded by 21% to Bt4.9bn, according to our model; we forecast further growth of 12.5% to Bt5.5bn in FY14.

Expect strong 4Q13 profit increase of 16% YoY

TISCO's 4Q13 profit is anticipated at Bt1.6bn, up 16% YoY, driven by ongoing lending growth, good OPEX management and a lower headline corporate tax rate of 20% (down from 23% in 2012). In QoQ terms, we expect the bottom-line to inch up just 2%, led by lighter loan loss provisioning, which we believe would have outweighed the effect of lower fee income (chiefly lower securities brokerage revenue and investment gains in) and year-end expense-booking.




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