TISCO Financial Group: Credit quality in focus
- 1Q25 earnings came in at THB1.6bn (-5.2% y/y; -3.4% q/q), in line with expectations
- Loans contracted 1.4% y/y and 0.5% q/q in 1Q25
- NIM to further decline on lower yields, while credit cost normalisation is likely delayed due to slower loan growth
- Maintain HOLD with TP of THB108
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Meanwhile, its pre-provision operating profit (PPOP) decreased 0.1% y/y and 0.6% q/q to THB2.4bn. The y/y decrease was attributed to lower NII, while the q/q decline was due to lower NII and lower fee income.
3M25 earnings accounted for 25% of our full-year forecast.
Loans contracted 1.4% y/y and 0.5% q/q in 1Q25. The q/q contraction was attributed to the decline in retail and SME loans, while corporate loans increased.
Retail loans (68% of total loans) decreased 0.7% q/q. Hire purchase (HP) (43% of total loans) declined 0.8% q/q, due to the decline in new-car HP, while used-car and motorcycle HP increased. In the meantime, auto cash loans (19% of total loans) declined 0.8% q/q, while housing loans (3% of total loans) declined 3.4% q/q.
SME loans (6% of total loans) also declined 5.4% q/q, largely from loan repayment in car inventory financing amid weak domestic car sales.
Meanwhile, corporate loans (27% of total loans) increased 1.3% q/q from utilities and services sector.
Asset quality remained manageable. NPLs increased 2.3% q/q to THB5.6bn, and NPL ratio ticked up to 2.42% at end-1Q25 (vs. 2.35% at end-4Q24). The increase was in line with the bank’s strategy to expand high-yield loans and amid the fragile economic conditions.
With that, TISCO maintained a cautious loan underwriting policy, as well as a prudent risk management and provisioning policy. TISCO set aside an ECL of THB386mn (+38.2% y/y; +14.4% q/q) or a credit cost of 69bps in 1Q25 (vs. 60bps in 4Q24), in line with its plan to step up credit cost to a normalised level in 2025. Coverage ratio declined to 154% at end-1Q25 (vs. 155% at end-4Q24).
Strong capital position to support future dividend payment. At end-1Q25, its Tier 1 capital remained high at 17.1%, while its capital adequacy ratio (CAR) was 18.8%. With TISCO’s strong capital position and its capital management policy to optimise ROE, we expect a high dividend payout from the company from its FY25F operations.
Key highlights for 1Q25 results:
i) NIM to further decline on lower yield. As a ballpark, c.30% of TISCO’s assets are priced at floating rates and thus will be negatively affected by the policy rate cuts in Oct 2024 and Feb 2025. Meanwhile, interest income from loans under the “You Fight, We Help” debt restructuring programme will be foregone during the programme period, implying lower yields for those respective loans. These two factors pressured yield and NIM in 1Q25 and will continue to do so at least over the next few quarters.
Note that the number of TISCO’s eligible clients was approx. THB13.7bn (or 6% of total loans). As of Mar 2025, the number of registered clients was about THB4.3bn (or 32% of eligible clients), and THB2.6bn (or 60% of the registered clients) was successfully restructured.
As the registration period is set to end on 30 Apr 2025, the number of clients participating in the programme is likely to increase, implying a potentially lower yield in 2Q25F.
In the meantime, with the policy rate cuts mentioned above, management expects its cost of funds to gradually reprice (i.e., decline), probably over 6-12 months. Note that management expects at least one more rate cut in 2Q25F, implying even lower cost of funds in the coming quarters. This factor should help cushion NIM from declining yield.
ii) Manageable OPEX and C/I ratio. OPEX decreased 0.9% y/y and 4.4% q/q in 1Q25, while cost-to-income (C/I) ratio declined to 47.9% (vs. 48.1% in 1Q24 and 48.9% in 4Q24). The decline was thanks to the company’s effective operating cost control and a decrease in variable expenses.
As of Mar 2025, there were 808 Somwang branches, with no new branches opened in 1Q25. This reflects that TISCO’s strategy has shifted to focus on enhancing efficiency (i.e., increasing sales) at Somwang branches, instead of adding more branches. With that, TISCO expects its C/I ratio to decline in FY25F.
iii) Credit cost normalisation likely delay. TISCO earlier planned for credit cost to step up to a normalised level of 100-120bps in 2025, in line with its loan portfolio, which has shifted towards high-yield loans, and with a higher-risk portfolio, NPL ratio is expected to also increase in FY25F.
Meanwhile, excess reserve and coverage ratio are expected to decline, alongside the path of the credit cost normalisation. Nonetheless, management expects to maintain a coverage ratio at a level not lower than 140%.
However, with the currently sluggish economic conditions and rising global uncertainties, it is likely that loan growth may not come in as strong as expected in FY25F, and thus credit cost may also not be as high as what was earlier guided by management.
More importantly, a cautious loan underwriting policy is crucial for TISCO to manage its credit cost journey.
Our FY25F earnings forecast largely unchanged. While we (i) revised down FY25F NIM to reflect potentially lower yields, we also (ii) reduced our credit cost assumption to be in line with (iii) lower loan growth forecast. With that, our FY25F earnings remained largely unchanged.
Maintain HOLD with TP of THB108. Our TP is based on 2.0x FY25F P/BV, i.e., 1SD above its LT average P/BV. We believe TISCO’s premium valuation is justified by its highest ROE among its banking peers. While we estimate its FY25F earnings growth
(-5.5% y/y) to be weaker than the sector average (+2.3% y/y), its dividend yield remains attractive (at c.7.8%) and should support TISCO’s share price. Our HOLD rating stands.
THB mn | 1Q25 | 1Q24 | y/y (%) | 4Q24 | q/q (%) |
NII | 3,328 | 3,395 | (2.0) | 3,402 | (2.1) |
Fee income, net | 1,176 | 1,168 | 0.7 | 1,310 | (10.3) |
Non-NII | 1,352 | 1,307 | 3.4 | 1,397 | (3.3) |
Total operating income | 4,680 | 4,703 | (0.5) | 4,799 | (2.5) |
Total operating expenses | 2,242 | 2,263 | (0.9) | 2,345 | (4.4) |
PPOP | 2,427 | 2,430 | (0.1) | 2,442 | (0.6) |
ECL | 386 | 279 | 38.2 | 337 | 14.4 |
Net profit | 1,643 | 1,733 | (5.2) | 1,702 | (3.4) |
EPS (THB) | 2.05 | 2.16 | (5.1) | 2.13 | (3.8) |
% | 1Q25 | 1Q24 | y/y (ppts) | 4Q24 | q/q (ppts) |
NIM (bps change) | 4.78 | 4.78 | 0.7 | 4.93 | (14.4) |
ROAA | 2.33 | 2.42 | (0.1) | 2.43 | (0.1) |
ROAE | 14.98 | 16.00 | (1.0) | 16.11 | (1.1) |
Cost-to-income ratio | 47.90 | 48.12 | (0.2) | 48.87 | (1.0) |
Credit cost (bps) | 68.55 | 49.12 | 19.4 | 60.12 | 8.4 |
THB bn | 1Q25 | 1Q24 | y/y (%) | 4Q24 | q/q (%) |
Loans | 225 | 228 | (1.4) | 226 | (0.5) |
Deposits | 206 | 209 | (1.0) | 207 | (0.1) |
% | 1Q25 | 1Q24 | y/y (ppts) | 4Q24 | q/q (ppts) |
LDR | 108.77 | 109.15 | (0.4) | 109.23 | (0.5) |
LDR+borrowings | 105.37 | 106.01 | (0.6) | 105.12 | 0.2 |
Coverage ratio | 153.81 | 177.84 | (24.0) | 155.33 | (1.5) |
NPL | 2.42 | 2.27 | 0.2 | 2.35 | 0.1 |
CAR | 18.80 | 18.22 | 0.6 | 18.63 | 0.2 |
T1 | 17.10 | 16.21 | 0.9 | 16.99 | 0.1 |
T2 | 1.70 | 2.01 | (0.3) | 1.64 | 0.1 |
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