Date: October 16, 2024
Broker: UOB Kay Hian
Company Overview
TISCO Financial Group is a small bank with approximately 2% of the credit market in Thailand. The bank primarily focuses on auto hire-purchase (HP) lending, which makes up 64% of its loan portfolio. The company is listed under the ticker TISCO TB on Bloomberg and operates within the financial sector.
Stock Data
- Share Price: Bt96.75
- Target Price: Bt98.00
- Market Capitalization: Bt77,675.9m (approx. US$2,334.4m)
- Shares Issued: 800.6 million
- 3-Month Average Daily Turnover: US$11.8 million
- 52-Week High/Low: Bt101.50/Bt90.00
- Major Shareholders:
- CDIB & Partners Investment Holding: 10.0%
- Thai NVDR: 7.5%
- Tokyo Century: 4.9%
3Q24 Financial Performance
TISCO reported a net profit of Bt1,713m for 3Q24, reflecting a 9% decline year-on-year (yoy) and a 2% decline quarter-on-quarter (qoq). The performance was in line with both UOB Kay Hian’s and consensus expectations. Key factors influencing these results were a 1% contraction in the loan portfolio yoy, largely due to corporate client repayments and the bank’s cautious lending strategy.
Net interest income remained stable at Bt3,385m, showing a slight drop of 0.1% qoq. Meanwhile, non-interest income decreased by 10.7% qoq but grew 11.5% yoy, with loan loss provisions dropping by 12.2% qoq.
Cost of Funds and Margins
TISCO’s cost of funds (COF) stabilized at 2.43% in 3Q24, signaling that COF has likely peaked. Lending yields saw a slight increase to 7.69% from 7.66% in 2Q24, and the bank’s net interest margin (NIM) remained stable at 4.88%.
Loan Portfolio and Asset Quality
In 3Q24, TISCO’s loan portfolio contracted by 1% yoy and 2% qoq, reflecting the bank’s cautious approach to lending. Corporate loan repayments contributed to this decline. The non-performing loan (NPL) ratio remained stable at 2.44%, with loan loss coverage (LLC) decreasing from 163% in 2Q24 to 159% in 3Q24. TISCO intends to gradually reduce its LLC ratio to no lower than 140%.
The bank’s management expects credit costs to normalize to 100bp in 2025. Provision expenses dropped by 12% qoq, leading to a credit cost of 62bp in 3Q24.
Earnings and Profitability Outlook
- FY24 Net Interest Income: Bt13,833m
- FY24 Net Profit: Bt6,979m
- FY24 Dividend Yield: 7.9%
- FY24 PE Ratio: 11.1x
- FY24 P/B Ratio: 1.8x
TISCO projects no significant growth catalysts in the near term but expects improvements in 2025. These include a potential recovery in the capital markets, higher non-interest income, and better cost-to-income ratios.
Shareholder Returns and Capital Management
TISCO maintains a strong capital adequacy position with a Tier-1 CAR of 18.9% as of 3Q24. Management guided that the ROAE should be maintained at no less than 15%, with the 9M24 ROAE at 16.5%. Additionally, the dividend payout ratio is expected to be capped at 100%, depending on the company’s bottom-line results.
Environmental, Social, and Governance (ESG)
Valuation and Recommendation
UOB Kay Hian maintains a HOLD rating for TISCO, with an unchanged target price of Bt98.00, based on the Gordon Growth Model (cost of equity: 11.5%, long-term growth: 2%). This implies a 1.8x P/B valuation for 2025, slightly below the five-year historical average.
Key Risks and Catalysts
Potential catalysts include a policy rate cut in Thailand. However, management foresees no significant earnings growth in the short term, with more promising results expected from 2025 onwards.
