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TISCO Financial Group

4Q13A: Unpleasant surprise in asset quality BUY

TISCO Financial Group Plc

4Q13A below estimates. 4Q13A net profit decreased 19% YoY and 29% QoQ to

Bt804mn, below our forecast of Bt1.184bn. There was a negative surprise in the

area of NPLs and provisions, which was offset partly by lower opex than

anticipated.

Key points:

1. Loan growth: In line with expectations, +2.6% QoQ, +18% YoY. 4Q13 loan

growth came primarily from corporate loans with a small rise in auto loans.

2. Net interest margin: Worse than expected, -14 bps to 2.6%. Yield on earning

assets fell 14 bps QoQ as a result of a higher proportion of corporate loans.

Cost of funds was stable QoQ.

3. Non-interest income: Slightly better than estimated, +6 QoQ, mainly driven by

gain on investment and foreign exchange.

4. Cost to income: Substantially better than anticipated, falling to 19.1% (lower

than usual) from 38.5% in 3Q13. There was an unusual 38% QoQ reduction in

personnel expenses that indicates TISCO's cost tightening policy.

5. Asset quality: Worse than expected: NPLs surged 18% QoQ, pushing NPL ratio

up to 1.7percent from 1.47% in 3Q13, mainly used car hire-purchase loans. Provision

expense doubled QoQ, bringing full-year credit cost to 1.42%, well above the

guidance of 1.2%. LLR coverage shrank to 128percent from 136% at 3Q13.

Maintain Buy. We maintain Buy on TISCO, seeing it as undervalued at this point.

We believe the current share price already reflects the potential slowdown in loan

growth and its deterioration in asset quality. There is upside risk from a further cut

in the policy rate as the central bank tries to cope with the slowing economy,

which is beginning to feel the pain of the political unrest. Our earnings forecast

and target price are under review pending the analyst meeting on January 15.


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