TISCO’s 2Q23 results were decent with good loan growth, better NIM, lower credit cost (despite rising NPLs), lower fee income and higher opex. We upgrade to Outperform with a hike in TP to Bt108 (due to a roll over) on an attractive dividend yield after a fall in share price.
2Q23 Earnings in line. TISCO reported 2Q23 net profit of Bt1.85bn (+3% QoQ, stable YoY), in line with estimates. The beat on NII and credit cost was offset by a miss on fee income and opex.
Highlights:
- Asset quality: NPLs rose 7.9% QoQ with a 6 bps QoQ rise in NPL ratio to 2.2% on hire-purchase and auto cash loans. However, credit cost eased 12 bps QoQ to 0.11% in 2Q23, lower than we expected and our 2023F of 0.25%. LLR coverage fell to 224% at 2Q23 from 248% at 1Q23. We maintain our 2023F credit cost at 0.25%.
- Loan growth: Stronger than expected at +4.7% QoQ, +13.4% YoY and 5.2% YTD, mainly corporate loans (+22% QoQ, +48.7% YoY, +26.5% YTD) and auto cash loans (+3.7% QoQ, +18.8% YoY, +8.2%), that offset a contraction in HP loans (-0.6% QoQ, -0.3% YoY, -1.3%), SME loans(-2.3% QoQ, + 33.7% YoY, -11.1% YTD) and mortgage loans (-3.4% QoQ, -13.2% YoY, -5.9% YTD). We keep our 2023F loan growth at 8%.
- NIM: Better than anticipated, +17 bps QoQ (-4 bps YoY). Yield on earning assets rose 34 bps QoQ (+56 bps YoY). Cost of funds rose 20 bps QoQ (+74 bps YoY).
- Non-NII: -4% QoQ (-9% YoY), on a fall in fee income (-9% QoQ, -1% YoY) with larger gain on financial instruments.
- Cost to income ratio: Worse than expected, +96 bps QoQ (+356 bps YoY) to 50.26% as opex rose 4% QoQ (+12% YoY).
Earnings outlook. 1H23 earnings accounted for 49% of our full-year forecast. We expect 3Q23F earnings to be stable QoQ and rise modestly YoY. We expect 2% earnings growth in 2023, underpinned by 8% loan growth, stable NIM, a 9 bps slip in credit cost and a 3% fall in non-NII.
Upgrade to Outperform with a rolled over TP. TISCO’s dividend yield becomes attractive at 8.2% for 2023 after a 7% fall in share price from YTD peak. We thus upgrade TISCO to Outperform with a hike in TP to Bt108 (1.9x 2024F BVPS) from Bt105 as we roll valuation over to 2024F.
Key risks: 1) Asset quality risk from high inflation and global economic slowdown and 2) volatile capital market.
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