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TISCO Financial Group

4Q13 profit far below estimate, due to heavy loan loss provisioning

TISCO Financial Group Plc (TISCO)

4Q13 profit was 30% below our projection

TISCO announced 4Q13 earnings of Bt804m, down by 19% YoY and 29% QoQ. The result was 30% below our number and 29percent short of the Bloomberg consensus, attributable to much heavier loan loss provisions than modeled. The bank holding company set 4Q13 LLPs of Bt1.6bn; we had assumed only Bt670m. However, its pre-provision operating profit (PPOP) jumped by 22% YoY and 18% QoQ to Bt2.5bn in 4Q13. FY13 earnings rose 15% to Bt4.2bn, which represents 92% of our FY13 expectation of Bt4.6bn.

Results highlights

Lending grew by 2.6% QoQ and 17.7% YoY—somewhat below our estimate of 22% YoY. Disaggregated by category, retail loans rose by 1.0% QoQ, corporate by 11.1% QoQ and SME by 3.1%. However, other lending business (such as personal loans collateralized by vehicles, motorcycle HP, etc) dived by an average of 32% QoQ, due to a tighter lending approval policy. 4Q13 NIM was 2.74% (down slightly from 2.88% in 3Q13).

TISCO set big loan loss provisions of Bt1.6bn in 4Q13, up by 203% YoY and 107% QoQ, which to some extent reflects the prevailing economic uncertainty and political turmoil. But we had expected the bank holding company to set LLPs of only Bt670m. Its stated NPLs/loans ratio rose only negligibly to 1.7% at YE13 from 1.47% at end-September. The loan loss coverage ratio declined to 127.9% at YE13 from 136.1% at end-September, due to bad debt write-offs. Note that 4Q13 fee income fell 15% YoY (flat QoQ) to Bt1.22bn.

Outlook

Management recently guided for total loan portfolio growth of 15% this year, driven by corporate and retail business. Our assumption for FY14 is slightly more bullish at 17%. However, TISCO will hold an analyst meeting on Wednesday during which it will probably offer new guidance that might have come impact on our model.

What's changed?

Our FY14 earnings forecast stands unchanged for the moment at Bt5.1bn, up 20% YoY. There could be revisions following the analyst meeting.

Recommendation

Although TISCO's FY13 earnings were 8% below our model, due to heavy LLP-setting, we expect provisioning to normalize this year. We forecast that FY14 LLPs will fall 13% YoY to Bt3.6bn. The stock trades at an inexpensive PBV of 1.3x with an attractive dividend yield of 6.5%. Given its cheap valuation, high dividend yield and the lowest NPLs/loans ratio in the sector of 1.7%, we rate TISCO a BUY.




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