- TQM expects profits to recover gradually in 2H24 and 2025, driven by moderate growth in fee income, lower costs, and increased profit sharing from associated companies.
- The company acquired two new businesses in 3Q24: MyGroup (19.43%) and JipJip Money (25%), which are expected to increase customer access channels and profit sharing.
- Maintains a NEUTRAL recommendation and a target price of 28 baht due to relatively high valuation, while key risk factors include slowing car sales and increased competition.
Research
TQM – Gradual recovery with new acquisitions
We expect a gradual earnings recovery in 2H24 and 2025 on moderate fee & service income growth, easing cost to income ratio and rising contribution from the lending business and affiliates after two new acquisitions in 3Q24. We keep our Neutral rating with an unchanged TP of Bt28, seeing valuation as demanding.
New acquisitions. In 3Q24, TQM acquired a 19.43% stake in My Group Intelligent Company Limited (My Group) for Bt300mn. As owner of the Mysave and Shippop brands, My Group operates over 6,600 logistics service points, which add touchpoints for TQM to tap into customers. It also acquired a 25% stake in Ngern Rueang Jib Co., Ltd. (JipJip Money) which is a leading brand specializing in premium consignment services for luxury assets such as high-end bags, watches and jewelry. In 2024, TQM expects My Group’s earnings at ~Bt70mn (vs. Bt38mn in 2023) and JipJip Money’s at ~Bt20mn (vs. Bt1mn in 2023). We raise our assumption of profit from affiliates from Bt7mn to Bt15mn in 2024 and from Bt10mn to Bt30mn in 2025.
Trim fee & service income growth. We trim 2024F fee & service income growth to 8% from 9% (vs. +7% YoY in 1H24), still in line with TQM’s target of 5-10%, looking for little change QoQ in 3Q24 with a seasonal rise QoQ in 4Q24. In 2025, we expect fee & service income growth to edge down to 7% off a larger base and slower growth in renewal auto premiums (TQM’s main product) after an estimated 20% fall in domestic car sales in 2024.
Easing cost to income ratio. We expect cost to income ratio to come down gradually from 70.51% in 2023 to 70.44% in 2024 and 69.68% in 2025 as a result of economies of scale after adding ~400 staff in 1Q23.
Rising contribution from lending business. Loans at subsidiary Easy Lending are up 32% YTD to Bt1.4bn as of 2Q24: 70% insurance premium loans, 27% secured loans and 3% car title loans. We forecast loan growth at 150% in 2024 and 75% in 2025. We thus expect net interest income to surge 203% to Bt33mn in 2024 and 99% to Bt66mn in 2025.
2H24F and 2025F earnings outlook. In 2H24, we expect earnings to rise HoH and YoY, underpinned by a moderate YoY growth in stable fee & service income, rising contribution from the lending business and larger profit from affiliates after two new acquisitions. We expect earnings growth to accelerate from 1% in 2023 to 6% in 2024 and 12% in 2025.
Maintain Neutral with an unchanged TP. We maintain our Neutral rating with an unchanged TP of Bt28 (based on 5.1x PBV or 17.4x PE for 2025F).
Key risks: 1) Fee and service income are at risk from slowing car sales and rising competition and 3) ESG risk on market conduct.