Finance - Preview 3Q24: Flat QoQ with higher ECL

We expect 3Q24F earnings of micro finance companies under coverage to be essentially flat QoQ but up slightly YoY. We expect 3Q24F to show: 1) a continued deterioration in asset quality (though NPL formation has passed the worst) with rising credit cost, 2) moderate loan growth, 3) a slip in NIM from rising cost of funds and 4) a fall in cost to income ratio. We keep TIDLOR as our sector pick on strong 2025F earnings recovery and attractive valuation.

MTC: Flat QoQ, up YoY. We expect 3Q24F earnings of Bt1.45bn, up 1% QoQ and 13% YoY. We look for continued good loan growth at 4% QoQ and 16% YoY. NIM is expected to fall 7 bps QoQ (-82 bps YoY) due to rising cost of funds. MTC saw MoM stable NPL inflow in July and August. Credit cost is expected to rise 21 bps QoQ to 3.3% in 3Q24 to support write-offs and NPL sales. It added 51 branches in 3Q24, fewer than 192 in 2Q24. We thus expect cost to income ratio to fall 68 bps QoQ (+163 bps YoY) to 46.78%.

TIDLOR: Down QoQ, up YoY. We forecast 3Q24 earnings at Bt1.05bn, down 4% QoQ but up 4% YoY. Credit cost is expected to rise by 19 bps QoQ (+72 bps YoY) to 3.81% in 3Q24 to support a balance sheet cleanup in order to keep NPL ratio at no higher than 2%. Loan growth is expected to be 2.5% QoQ (15% YoY) in 3Q24, slower than 2.8% QoQ (18% YoY) in 2Q24, as a result of a stricter credit policy. NIM is expected to rise 5 bps QoQ (-1 bps YoY) as a rise in loan yield from interest rate hikes will be offset by a rise in cost of funds. Non-NII is expected to go up 7% QoQ (+15% YoY), mainly on insurance brokerage income. Cost to income ratio is expected to rise 122 bps QoQ (-74 bps YoY) to 54.6% on seasonality.

SAWAD: Up QoQ, down YoY. We expect 3Q24 earnings of Bt1.33bn, up 5% QoQ but down 5% YoY, with moderate loan growth at 2% QoQ and 9% YoY in the quarter. NIM is expected to slip 4 bps QoQ due to rising cost of funds and falling loan yield on a lower proportion of motorcycle HP. We expect 3Q24 credit cost to rise 3 bps to 2.3%. Cost to income ratio is expected to fall 24 bps QoQ (-259 bps YoY) on smaller losses on repossessed vehicles.

Earnings outlook: Flattish in 2H24, Good recovery in 2025. In 2H24, we expect earnings to be essentially flat QoQ and YoY, with QoQ stable loan growth, a QoQ fall in NIM from rising cost of funds and continued high credit cost. In 2025, we expect strong earnings growth at 23% for MTC, 22% for TIDLOR and SAWAD at 12% (+3% for EPS), driven by decent loan growth, a slight fall in credit cost and stable cost of funds (easing in 2H25).

Keep TIDLOR as sector pick. We keep TIDLOR as our sector pick, seeing it as less expensive than peers and we expect solid 22% earnings growth in 2025.

Key risks: 1) Asset quality risk from an uneven economic recovery,
2) credit cost risk from falling used vehicle prices, 3) rising competition from banks, and 4) ESG risk from market conduct and regulatory risk.