TISCO Financial Group: High dividend yield – a saviour
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- Loan growth momentum continued in May
- 2Q25F earnings to come in at THB1.6bn (-10.6% y/y, -4.6% q/q)
- Quarterly earnings to decline y/y and q/q for the remainder of FY25F; high dividend yield to hold up share prices
- Maintain HOLD with a TP of THB108
Loan growth momentum continued in May. Loans expanded 0.4% m/m and 0.6% YTD-May but contracted 0.4% y/y. The m/m expansion was derived from corporate and SME loans, while retail loans remained flat.
Retail loans were flat m/m in May, as the increase in hire purchase (HP) loans (+0.2% m/m) outweighed the decline in auto cash loans (-0.2% m/m) and housing loans (-1.5% m/m).
Specifically, new-car HP stayed flat m/m (for the first time in months, if not years), as loan repayments were more than offset by new lending in May, thanks to the bank’s strategy to penetrate mass brands to expand its new-car HP portfolio amid rising economic uncertainties and the declining interest rate trend. Meanwhile, used-car HP (+0.4% m/m) and motorcycle HP (+1% m/m) also continued to increase.
Note that management has been cautious in the high-yield lending business, especially auto-cash loans, as it saw signs of asset quality deterioration. We notice that its auto-cash loan portfolio has continued to contract m/m since Jan 2025 (-1.0% YTD), following a slow growth exhibited in late 2024.
Corporate loans expanded 1.5% m/m in May, thanks to loan drawdowns from the property and utility sectors. Meanwhile, SME loans increased 0.2% m/m, thanks to an improving loan demand from floorplans, following four consecutive months of decline in 4M25.
Deposits also increased. Deposits increased 1.3% m/m, 1.9% y/y, and 1.3% YTD. Meanwhile, borrowings remained flat m/m and y/y but declined 2.5% YTD-May. The m/m increase in its deposits was derived from all deposit products.
With that, loan-to-deposit (LDR) + borrowings ratio decreased to 104.6% at end-May 2025, vs. 105.5% at end-Apr 2025 and 105.1% at end-Dec 2024 (Table 1).
2Q25F earnings to decline y/y and q/q on lower top line and higher credit costs. We expect TISCO’s earnings to come in at THB1.6bn (-10.6% y/y; -4.6% q/q) in 2Q25F. The y/y and q/q decline should be owing to lower top line (from net interest margin [NIM] contraction) and higher credit cost (as the bank is in the process of credit cost normalisation). Note that we anticipate TISCO’s credit cost to gradually increase q/q over the course of FY25F.
Meanwhile, pre-provision operating profit (PPOP) is expected to also decrease 6.0% y/y and 0.4% q/q to THB2.4bn. The decline should be attributed to lower net interest income (NII; from NIM contraction) and lower non-NII (largely from the capital market slowdown).
However, we expect TISCO to be able to control its cost-to-income (C/I) ratio at 47.0% in 2Q25F (vs. 47.7% in 2Q24 and 47.9% in 1Q25) thanks to its slow Somwang branch expansion plan.
If our 2Q25F preview is accurate, 1H25F earnings will account for 51% of TISCO’s FY25F earnings.
Quarterly earnings to decline both y/y and q/q for the remainder of FY25F. We believe 2025 will be another challenging year for TISCO, as top line is expected to be weaker, while credit cost normalisation pressures bottom line.
While loan growth may be stronger than FY24, NIM is likely to decline, resulting in lower NII in FY25F. The decline in NIM should be due to lower yields from selective lending strategy, while cost of funds is likely gradually repricing down (following the policy rate cuts in Oct 2024, Feb 2025, and Apr 2025).
Fee income and non-NII growth remain challenging, depending on the economic and capital market conditions. Meanwhile, we expect its C/I ratio to remain in check, in line with slow business activities.
In sum, on a quarterly basis, we expect TISCO’s earnings to be softer y/y and q/q over the course of FY25F, due to lower top line and higher credit costs.
Attractive dividend yield to hold up share prices. Despite an earnings contraction expected in FY25F, we believe TISCO will continue to pay a hefty dividend. At the current share price, we expect its dividend yield to be 7.9% in FY25F.
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 (-8.4% y/y) to be weaker than the sector average (flat y/y), its dividend yield remains attractive at 7.9% and should support TISCO’s share price. Our HOLD rating stands.
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