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TISCO Financial Group

2Q14 profit slightly above our model

TISCO Financial Group Plc

- 2Q14 profit was 3% above our forecast

TISCO reported 2Q14 earnings of Bt992m, down 14% YoY but up 6% QoQ. The result was 3% above our number and the Bloomberg consensus, attributable to a fatter NIM than modeled. 2Q14 NIM was 3.05%; we had assumed only 2.87%. Note that pre-provision operating profit (PPOP) rose by 11% YoY and 4% QoQ to Bt2.4bn. 1H14 earnings represent 45% of our FY14 forecast of Bt4.3bn.

Results highlights

Lending dipped 1.5% QoQ—broadly in line with our estimate. Disaggregated by category, retail declined 1.8% QoQ, other business (such as personal loans collateralized by vehicles, motorcycle HP, etc) was down 2.6% and SME lending fell 8.6%. However, corporate loans rose 3.4% QoQ, led by demand among the real estate, public utilities and service sectors. Note that loans outstanding at end-June declined 4.5% YTD.

2Q14 NIM rose 29 bps QoQ to 3.05%, as funding costs were cut more sharply than loan rates.

TISCO set heavy loan loss provisions of Bt1.2bn for 2Q14, up by 51% YoY and 5% QoQ, which to some extent reflects the prevailing economic uncertainty and political turmoil that prevailed for much of the quarter. But we had expected the bank holding company to set LLPs of only Bt1.1bn. Its stated NPLs/loans ratio rose to 2.27% at end-June 2014 from 1.89% three months earlier. Likewise, the loan loss coverage ratio fell to 105percent from 120.7% at end-March, due to bad debt write-offs. Note that 2Q14 fee income dipped 2% YoY (but was up 2% QoQ) to Bt1.26bn.

Outlook

Management recently guided for total loan growth of 4-5% this year, driven by corporate and SME business. We maintain our FY14 assumption at a slightly more bullish 6%.

What's changed?

We expect 2H14 earnings to rise HoH.

Recommendation

The poor 1H14 earnings will be followed by a recovery in 2H14, we believe, led by SME and corporate business. We also expect TISCO's loan loss provisioning to decline somewhat in 2H14 after the setting of heavy LLPs in 1H14. However, the stock's YE14 PBV is 1.4x, which is already equal to its long-term mean. Our HOLD rating stands.


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