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TISCO Financial Group

1Q14 misses: cut 2014 EPS, TP by 3% BUY

TISCO Financial Group Plc (TISCO)

- 1Q14 misses at Bt935mn (EPS Bt1.17), down 19% YoY but up 16% QoQ - both on provisions- higher YoY and lower QoQ. This was 15% below our Bt1.1bn on higher-than-expected provisions but in line with consensus' Bt962mn. 1Q14 was weaker operationally, with negative loan growth, falling non-interest income and a moderate rise in NPLs that led to higher provisions than expected. The high points were a stable net interest margin and lower cost to income ratio. Key points:

1. Loan growth: Worse than expected, -2.6% QoQ, with a fall in all segments - corporate loans -1.6%, SME loans -7%, and retail loans -2.3%. We expect a small recovery in 2Q14, driven by the Motor Show.

2. Net interest margin (NIM): In line, +1 bps QoQ to 2.68%. As a result of interest rate cuts, both yield on earning assets and cost of funds fell 6 bps QoQ. TISCO reduced low-yield excess liquidity to sustain NIM and we expect this to be stagnant in 1H14 before slowly recovering in 2H14 upon deposit re-pricing.

3. Non-interest income: In line, -22% YoY and -2% QoQ, with the expected lower fee income related to the capital market and lending.

4. Cost to income ratio: As expected, down YoY from 37.5% but a normalized QoQ rise to 35.6percent from 29.7%. The YoY fall in cost to income ratio reflects its cost tightening policy. A reversal of accrued bonus made 4Q13 opex unusually low.

5. Asset quality: NPLs rose Bt400mn or 8% QoQ, slowed from 2013. NPL ratio rose to 1.89percent from 1.70% in 4Q13, up in all segments - corporate loans +7.2%, SME loans +64%, and retail loans +6%. Credit cost was 1.64%, up YoY from 1.4% in 1Q13 but down QoQ from 2.21% in 4Q13, higher than we anticipated. LLR coverage continued falling to 121percent from 128% at 4Q13.

1Q14 misses at Bt935mn (EPS Bt1.17), down 19% YoY but up 16% QoQ - both on provisions- higher YoY and lower QoQ. This was 15% below our Bt1.1bn on higher-than-expected provisions but in line with consensus' Bt962mn. 1Q14 was weaker operationally, with negative loan growth, falling non-interest income and a moderate rise in NPLs that led to higher provisions than expected. The high points were a stable net interest margin and lower cost to income ratio. Key points:

1. Loan growth: Worse than expected, -2.6% QoQ, with a fall in all segments - corporate loans -1.6%, SME loans -7%, and retail loans -2.3%. We expect a small recovery in 2Q14, driven by the Motor Show.

2. Net interest margin (NIM): In line, +1 bps QoQ to 2.68%. As a result of interest rate cuts, both yield on earning assets and cost of funds fell 6 bps QoQ. TISCO reduced low-yield excess liquidity to sustain NIM and we expect this to be stagnant in 1H14 before slowly recovering in 2H14 upon deposit re-pricing.

3. Non-interest income: In line, -22% YoY and -2% QoQ, with the expected lower fee income related to the capital market and lending.

4. Cost to income ratio: As expected, down YoY from 37.5% but a normalized QoQ rise to 35.6percent from 29.7%. The YoY fall in cost to income ratio reflects its cost tightening policy. A reversal of accrued bonus made 4Q13 opex unusually low.

5. Asset quality: NPLs rose Bt400mn or 8% QoQ, slowed from 2013. NPL ratio rose to 1.89percent from 1.70% in 4Q13, up in all segments - corporate loans +7.2%, SME loans +64%, and retail loans +6%. Credit cost was 1.64%, up YoY from 1.4% in 1Q13 but down QoQ from 2.21% in 4Q13, higher than we anticipated. LLR coverage continued falling to 121percent from 128% at 4Q13.

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