High Conviction : TIDLOR Decent recovery with a relief on asset quality

We lift TP to Bt21 from Bt18 after raising our forecasts as we cut our credit cost assumption to reflect a potential ease in NPL inflow and write-offs on tailwinds from stimulus measures.

Easing NPL inflow and credit cost in 4Q24. TIDLOR is seeing an ease in NPL inflow and credit cost in 4Q24. The reduction in NPL inflow QTD is due to: 1) its stringent credit policy, 2) tailwinds from the government’s cash handout of Bt10,000 in September-October and 3) proactive debt collection by branches. After completing the majority of proactive write-offs in 2Q24 and 3Q24, TIDLOR expects no acceleration in write-offs in 4Q24 and thereby a material ease in credit cost in 4Q24. We cut our 2024F credit cost by 20 bps to 3.65% (+26 bps), expecting a 35 bps QoQ fall in credit cost in 4Q24. We also cut our 2025F credit cost by 20 bps to 3.6% (-5 bps).

Relaxing credit policy = pickup in loan growth. TIDLOR began relaxing its credit policy in October in response to tailwinds from the government’s stimulus. Thus, loan growth is expected to pick up in 4Q24 (after being mute in 3Q24 on a stringent credit policy and larger write-offs). It expects 2024 loan growth to come in slightly below its 10% target. We maintain our loan growth forecast at 8% in 2024 and 10% in 2025.

Continued NIM expansion. We expect a rise in NIM of 22 bps QoQ in 4Q24 and 64 bps in 2025 on a 200 bps hike in lending interest rates since 4Q23 to reflect higher credit risk using a risk-based pricing policy. TIDLOR expects a further rise in cost of funds of no more than 20 bps over the next six months. It will benefit from a possible further cut in policy rates.

Raise earnings forecast; decent recovery ahead. We raise our earnings forecast by 4% each in 2024F and 2025F after cutting our credit cost forecast. We now expect earnings to rise 12% in 2024 (8% for EPS), with 4Q24F earnings rising 9% QoQ (easing credit cost, NIM expansion and a pickup in loan growth) and 20% YoY. In 2025, we forecast earnings growth of 15%, underpinned by loan and fee income growth of 10%, a 64 bps expansion in NIM and a 5 bps ease in credit cost.

Restructuring to holding company = raising dividend payout. TIDLOR expects to complete restructuring into a holding company in January 2025. This will pave the way for a hike in cash dividend payout. We expect dividend payout to rise to 25% from 20%.

TP raised; cheapest valuation. We a raise TP from Bt18 to Bt21 (at 1.7x PBV or 12.5x PE for 2025F). TIDLOR is trading at the cheapest valuation among peers at 1.4x PBV (vs. 14.5% ROE) and 10.3x PE (vs. 15% EPS growth) for 2025F.

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.