Investment thesis: TISCO stands to be a leading beneficiary of the V-shaped recovery in car sales this year. It is also expanding its SME and corporate operations. Given the favorable outlook, we maintain our BUY rating with a YE12 target price of Bt45, based on a justified PBV of 1.8x.
Strong post-flooding profit recovery in 1Q12: We estimate a 1Q12 net profit of Bt920m, up by 36% QoQ. The expected QoQ bottom-line growth is due to lending expansion of 4% QoQ, led by strong post-flooding recoveries in retail business and used car refinancing.
Corporate tax and NIM: TISCO’s interest spread should post an increase to 3.2% for 1Q12, up from 2.9% in 4Q11, when flooding in the central provinces caused a slump in car sales. Furthermore, the lower headline corporate tax rate of 23% (down from 30% last year) will boost the bottom-line in 1Q12 and throughout the year.
Growth to be sustained through 2Q12: We view that the Automotive sector will improve further, as Honda (the second largest automaker in Thailand) resumed production in late March. Thus, TISCO will sustain HP lending growth. The effect of rising financial costs—intensifying competition for deposit mobilization among banks and the new FIDF (plus deposit insurance) levy of 0.47% on bank deposits and bank-issued B/Es (the old deposit insurance levy, which wasn’t charged on B/Es, was 0.4%)—can be fully passed through to clients, according to management, so NIM should more-or-less normalize in 2Q12.
Scope for earnings upside: We believe that TISCO has the potential to expand its aggregate loan portfolio and profitability significantly in excess of our projections. Toyota Motor forecasts 2012 new car sales growth of 38.5% to 1.1m units. The implication is that the bank’s HP lending could rise much more strongly than the 18% we currently assume in our model—even if it were to lose some market share in the category. As HP is a high-yield lending business, TISCO’s NIM would be fatter than our current forecast of 3.2% (management guides for a range of 3.2-3.4%). Hence, the stock looks a likely candidate for an earnings projection upgrade.