Finance – Preview 2Q23F: Rising credit cost

We expect 2Q23F earnings at most consumer finance companies under coverage to fall YoY and be fairly stable QoQ. Most finance companies are likely to boost provisions both QoQ and YoY on a continued rise in NPLs. Loan growth will accelerate QoQ (still robust YoY) with a small improvement in NIM QoQ. Although share prices of consumer finance companies are already down substantially, we suggest waiting for earnings recovery, hopefully in 2H23, anticipating worsening NPL inflow in 2Q23.

MTC: Stable QoQ, down YoY. We forecast MTC’s 2Q23F earnings to inch up 2% QoQ (higher NII mostly offset higher ECL) but fall 21% YoY (higher ECL) to Bt1.1bn. We expect loan growth to be robust at 4% QoQ and 22% YoY in 2Q23. NIM is expected to be flat QoQ as a rise in cost of funds is expected to be offset by a seasonal rise in loan yield (more days in EIR calculation). We expect credit cost to rise 28 bps QoQ (+190 bps YoY) to 3.8% in 2Q23, with NPLs continue to rise in 2Q23. Cost to income ratio will be fairly stable QoQ with a slight QoQ rise in opex in 2Q23 from steady branch expansion.

TIDLOR: stable QoQ, down slightly YoY. We forecast a slip in TIDLOR’s 2Q23F earnings of 2% QoQ (higher NII offset by higher ECL and opex) and 5% YoY (larger ECL) to Bt940mn. We expect QoQ loan growth to accelerate to 3% (22% YoY) in 2Q23 from 2% (29% YoY) in 1Q23, due to seasonality. NIM is expected to rise 4 bps QoQ as a seasonal rise in loan yield (more days in EIR calculation and lower proportion of truck loans) is expected to slightly exceed an increase in cost of funds. Credit cost is expected to rise 24 bps QoQ (+169 bps YoY) to 3.38% (vs. its full-year guidance of 3-3.35%) to accommodate larger write-offs. Growth in fee & service income is expected to still be robust at +5% QoQ and +29% YoY, driven by insurance brokerage income. Cost to income ratio is expected to rise slightly QoQ (but continue to slip YoY) on a rise in opex from marketing and IT expenses.

SAWAD: Stable QoQ, up nicely YoY. We expect SAWAD’s 2Q23F earnings to rise 2% QoQ (higher NII offset by higher ECL) and 17% YoY (larger NII) to Bt1.22bn. We expect continued robust loan growth at 72% YoY and 9% QoQ driven by new motorcycle hire-purchase and title loans. NIM is expected to fall a substantial 107 bps QoQ due to rising cost of funds and a cut in interest rate on motorcycle HP from >30% to 23% after the enforcement of the new HP Act on January 10, 2023. We expect credit cost to rise 61 bps QoQ (+168 bps YoY) to 2% on rising NPLs after an aggressive loan growth since 2022. We expect opex to ease slightly QoQ on a cut in dealer commission rate once the interest rate ceiling took effect in January.

THANI: Stable QoQ, down YoY. We expect THANI’s 2Q23F earnings to fall 2% QoQ and 11% YoY (higher provisions) to Bt440mn. We expect loans to grow 2% QoQ and 7% YoY. NIM is expected to be flattish QoQ as rising cost of funds is expected to be offset by higher yield on loans (higher proportion of title loans and more days in EIR calculation). Credit cost is expected to be stable QoQ but rise YoY.