Tisco Financial Group

Raise capital to pay dividend. Keep CAR unchanged to prepare for growth in 2013 HOLD

Tisco Financial Group Plc (TISCO)

Issue TSR for 72.79 million units at exercise price of Bt24 each for paying dividend

According to the analyst meeting on 19 February, TISCO clarified about the

objective of this round of capital increase, which is for paying a cash dividend to

its shareholders. The number of shares eligible to receive dividends is 729 million

shares, with the dividend of B2.4/share (or a payout ratio of 47%) which will

result in total dividend amount of B1.74bn. Accordingly, the company will

increase capital by B1.74bn through the issue of transferable subscription rights

(TSRs) and will issue 72.791209 million common shares (10% of current capital)

to reserve for the TSR exercise. The TSRs will be offered to existing shareholders

(book closing date is 7 May 2013) at the rate of 1 TSR for 10 existing shares

(either common or preferred), exercisable into 1 common share at the price of

B24 each; XW date is on 30 April 2013 (the company has a plan to list TSRs for

secondary trading on the SET). The total capital increase from the TSR exercise

will exactly equate the dividend payment (details are provided in the tables on

the next page). The company gave the reasons for the capital increase only at

the amount of the dividend payment as follows. 1) The company wants to

sustain high dividend yields to protect shareholders' benefits because in order to

keep capital adequacy ratio to prepare for future growth that might exceed the

target (net loan growth in 2M12 is almost 4%, so it is very likely to exceed

FY2013's target of 18%yoy) the bank will certainly have to cut the payout ratio

2) The company wants to provide existing shareholders with an option of

receiving cash dividend or TISCO stock dividend by exercise the TSRs if they

want yields in a form of capital gain in the future. 3) The company wants to

confirm its intention that a capital increase is not necessary because its high

profit base is already sufficient to support the loan growth to the target each

year. CAR after the recapitalization will stay at almost 10%.



Capital increase is likely beneficial; dilution effect is very low

We maintain our profit forecast for 2013-2014. However, due to dilution effect

from the TSRs exercise, net profit growth in 2013-2014 is projected to decrease

to 6.2%yoy and 14.1%yoy under an assumption for slower net loan growth of

only 20%yoy and NIM of 2.8%. We have a positive perspective toward TISCO

capital management which is a balance between dividend payment (high) and

growth (not too limiting the business growth). At the same time, with a strong

capital adequacy ratio under Basel 3 standard, the company is far from a risk of

large capital increase in the future.



Reiterate "hold to receive dividend". FV drops slightly;upside is very limited

We reiterate our recommend of "hold to receive dividend". The effect from this

round of capital increase will make 2013's fair value, at 2.10x PBV (GGM), drop

slightly to B57.70 from B58 (based on long-term ROE forecast of 25%). The

current share price has only 6% upside left.