TIDLOR - 3Q24: Miss on ECL, loan growth, fee income

With a miss on ECL, loan growth and fee income, 3Q24 reflected easing NPL inflow but a continued rise in credit cost, stagnant loans, larger NIM and a seasonal rise in cost to income ratio. We cut TP to Bt18 from Bt22 as we cut our earnings forecast by 5% for 2024F and 11% for 2025F. We maintain our Outperform on expectation of a moderate recovery in 2025 earnings.

3Q24: Miss on ECL, loan growth and fee income. 3Q24 earnings fell 9% QoQ and 2% YoY to Bt991mn, below INVX forecast by 6% and consensus by 7%, missing on ECL, loan growth and fee income.

Highlights:

1) Asset quality: NPL ratio rose 10 bps QoQ to 1.99% in 3Q24. NPLs rose 5% QoQ (+52% if write offs are added back), slower than +19% (+69% if write-offs are added back) in 2Q24, suggesting NPL inflow is easing Worse than expected, credit cost rose 35 bps QoQ (+88 bps YoY) to 3.97% in 3Q24 to accommodate larger write-offs. LLR coverage slipped to 222% from 227% at 2Q24. We raise our 2024F credit cost by 15 bps to 3.85% (+46 bps), expecting a QoQ rise in credit cost in 4Q24.

2) Loan growth: Flattish QoQ, +12% YoY, weaker than expected, reflecting its stricter credit policy. We cut our loan growth forecast to 8% from 11% in 2024F and 10% from 11% in 2025F.

3) NIM: Better than expected, +32 bps QoQ (+26 bps YoY) to 16.21% as a result of a 42 bps QoQ rise in loan yield from a hike in lending interest rates of ~200 bps since 4Q23. Cost of funds rose 14 bps QoQ to 3.41%. We expect a further rise in NIM in 4Q24 and 2025 due to a hike in lending interest rates to reflect higher credit risk.

4) Non-NII: Lower than estimated, -2% QoQ (+6% YoY) in 3Q24 due to a QoQ slip in insurance brokerage income. We cut our assumption for fee income growth to 12% from 17% in 2024 and 10% from 15% in 2025.

5) Cost to income ratio: As expected, +157 bps QoQ (-39 bps YoY) to 54.98% in 3Q24 due to seasonality. We maintain our 2024F cost to income ratio at 54.95%, expecting a seasonal rise in 4Q24.

Cut earnings forecast. We cut our 2024F by 5% and 2025F by 11% after raising our assumption for credit cost and cut our loan and fee income growth assumptions. We now expect earnings to rise 8% in 2024 (5% for EPS). 9M24 earnings accounted for 78% of our 2024F. We expect 4Q24F earnings to fall QoQ (due to a rise in credit cost and opex) and grow slightly YoY. In 2025, we forecast earnings growth of 14%, underpinned by moderate loan and fee income growth of 10%, better NIM and a small slimming in credit cost.

Maintain Outperform with a cut in TP. We maintain our Outperform rating with a cut in TP to Bt18 (at 1.5x PBV or 11x PE for 2025F) as we expect a moderate earnings recovery in 2025.

Key risks: 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, 4) regulatory risk and 5) ESG risk from market conduct.