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TISCO Financial Group

Slow growth outlook

TISCO Financial Group Plc (TISCO)

Investment thesis

Because of the slump in car sales, TISCO's HP business (about 70% of total loans) will slow sharply in 1H14. The bank holding company has increased focus on corporate and SME lending (about 30% of total lending). We forecast FY14 core earnings growth (excluding LLP-setting) of only 4.1%, down from 33% last year. But there are risks to our model: 1) loan growth might miss management guidance, due to political unrest, and 2) heavier loan loss provisions if GDP growth were to remain weak. Nevertheless, TISCO's assumed dividend yields are high at 5.7percent for FY14 and 6.3percent for FY15. We currently regard the stock as a dividend play.

Management cut FY14 loan growth target from 15% to 10%

Given weak car sales and political unrest, TISCO has revised down its earlier FY14 loan growth target of 15% to about 10%. HP and SME (mostly to car dealerships) portfolio growth will slow sharply in 1H14. Management guides for a net interest margin range of 2.8-2.9% (basically flat YoY). The HP portfolio is now expected to rise somewhat less than 10% this year, SME business may expand by 10-15% and corporate lending by 10-15%. We maintain our FY14 lending growth assumption of 10% (the bank's new guidance is in line with our number).

Lower FY14 loan loss provisions = better earnings

Management guides that FY14 LLPs should decline YoY unless the political chaos persists into 2H14. We currently expect FY14 LLPs of Bt3.6bn—equal to 1.15% of gross loans and in line with management guidance (TISCO guides for LLPs in the range of Bt800-900m/quarter). However, the risk remains of the political crisis rolling through into 2H14, which would probably mean heavier provisions.

No capital-raising needed this year

With only a modest loan growth profile of 10% and little business expansion on the horizon this year, TISCO believes that its current capital base is adequate for FY14 and FY15 operations. Its capital adequacy ratio at YE13 was 13.2%, of which Tier-1 comprised 9.2%. Management confirms that the bank holding company will not raise capital this year.

Anticipate a dividend yield of 5.7percent for FY14 up from 5% last year

The risk of downside to our earnings forecast is limited, we believe, given our conservative FY14 loan growth projection and relatively heavy LLP assumption. Thus, TISCO should deliver a good dividend yield of 5.7% (Bt2.25/share) for FY14 operations, up from 5percent for FY13. Note that the bank holding company announced an FY13 dividend payment of 2.0/share (XD on April 29).

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