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Tisco Financial Group

To recover most quickly among peers BUY

Tisco Financial Group Plc (TISCO)

- 1Q14 profit to recovers due to lower provision

We estimate TISCO's 1Q14 net profit at B1.02bn, growing 26.9%qoq but still

decreasing 11.5%yoy, which comprises 22% of our FY2014 net profit forecast. The

contribution is a 33.8%qoq decrease in debt provision in 1Q14 (yet increasing

13.6%yoy). Credit cost is projected to drop to 150bp from 221bp in 4Q13, versus

FY2013 average of 142bp. However, the estimated credit cost is still higher than

TISCO's policy rate of 120bp for FY2014. This is in line with an increase in NPL from

used-car leasing in 1Q14, though not as drastic as in 2H13. Excluding the item, the

normalized profit in 1Q14 would remain weak, possibly slumping 10.9%qoq because

fee income is anticipated to drop 3.3%qoq following decreasing transactions. Net

interest income is projected to stabilize from the prior quarter because net loans

would contract 2.5%qoq since repayment of car leasing loans has been larger than

new loan issuance. High repayment has been seen from corporate clients as well

because of decreasing confidence amidst the political turmoil. SME loans (floor plan)

have also decelerated for a whilel; only auto cash loans could show impressive

growth. 1Q14 NIM is projected to decrease by 4bp to 2.67% because funding cost

has increased following growing deposit base. Moreover, operating expense in 1Q14

is anticipated to increase 12.3%qoq because personnel expense has returned to

normal (continuous bonus provision).

- Await recovery in 2H14, most quickly among peers

We maintain our earnings forecast for 2014, expecting the full year net profit growth

of 10.2%yoy. Despite dull performance in 1H14 as a result of the sluggish economy,

the business is projected to rebound in 2H14 if the political situation improves in

1H14. We believe TISCO would show the quickest recovery among peers because its

used-car leasing portfolio is smaller than peers and the Motor Show exhibition held

during 26 March to 6 April 2014 would help to boost new car sales in the system,

thus regaining TISCO's loan growth since 2Q14 onward.

- Buy for dividend. PBV lower than 10-year average. Dividend yield over 6-7% p.a.

We reiterate to buy TISCO. The business has lacked stimulus in the short term, but

the share price has substantially absorbed the issue. TISCO's strong points are its

small business size which provides flexibility for rapid business adjustment, strong

capital base, and already high debt provision when compared with other small banks.

The current share price has PBV of only 1.3x, lower than the 10-year average of

1.8x. 2014 fair value is B47.41, at 1.5x PBV and under long-term ROE forecast of

19%, which implies 24% upside. Average dividend yield is estimated at 6-7% p.a. in

2013-2015 (paying annually).


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