Ngern Tid Lor PCL: Back to a growth mode
- 3Q24 earnings came in at THB991mn (-1.6% y/y; -9.2% q/q), missed expectations on higher-than-expected credit cost
- Asset quality passed bottom
- Heading towards a strong 4Q24F
- Maintain BUY with a TP of THB21.00
-9.2% q/q), 5% below expectations due to higher-than-expected credit cost. The y/y decrease was attributed mainly to higher credit cost, while the q/q decline was due to higher cost-to-income (C/I) ratio and higher credit cost.
Pre-provision operating profit (PPOP) increased 15.6% y/y but declined 1.1% q/q in 3Q24. The y/y increase was attributed to higher interest income and higher fee income, while the q/q decrease was due to lower fee income and higher OPEX.
9M24F earnings accounted for 75% of our FY24F forecast.
Loans contracted 0.3% q/q but expanded 11.8% y/y and 5.4% YTD-Sep to THB103bn. Such sluggish loan growth was in line with the company’s stringent loan approval strategy, e.g., lower loan-to-value (LTV), which in turn led to lower average loan size and a higher rejection rate, on top of its ongoing loan write-off activity. Note that TIDLOR’s approval policy for trucks has been restrictive since 2022.
Despite slow volume growth YTD, the company acquired lots of new customers in 9M24, and those new loans are of high quality.
Meanwhile, though total loans contracted 0.3% q/q in 3Q24, auto title loans increased 0.4% q/q, while its hire purchase (HP) portfolio contracted 6.9% q/q.
With that, the proportion of HP to total loans decreased to 9.2% at end-3Q24 (vs. 9.9% at end-2Q24). Note that most of its HP loans were for used trucks, and if broken down by collateral, used trucks accounted for about 17% of TIDLOR’s total loans (vs. 20% in 2Q23 and its peak at 25%).
TIDLOR opened 37 new branches in 3Q24 (vs. 30 in 1Q24 and two in 2Q24), taking the total number of branches to 1,747 at end-3Q24. The company aims to open a total of 100 branches in 2024.
As at end-3Q24, the company has issued more than 717k TIDLOR cards to its loan customers (+17% y/y), and over 69% of the disbursement transactions were conducted through the E-Withdrawal feature in the NTL application.
Yield expansion helped expand NIM further in 3Q24. TIDLOR’s yield increased y/y and q/q in 3Q24, as the company implemented risk-based pricing starting in 3Q23.
Specifically, for new lending, TIDLOR is pricing loans differently depending on the risks associated with specific customers, collateral vehicles, prevailing market situation, etc. Such lending rate adjustments are made mostly for truck and 4-wheel loans, while 2-wheel loans have a smaller gap for rate adjustments.
Meanwhile, cost of funds increased y/y and q/q due to higher interest rates for new borrowings (compared with existing and matured ones) and an increasing funding base to support loan growth.
Net-net, NIM expanded y/y and q/q to 15.96% in 3Q24 (vs. 15.71% in 3Q23 and 15.65% in 2Q24), as the increase in interest income outpaced the rise in interest expenses.
The company’s funding structure was almost evenly split between financial institution loans and debentures, with a ratio of 49:51 at end-3Q24. TIDLOR follows a funding diversification strategy, leveraging both domestic and international financial institution borrowings as well as issuing debt instruments. This approach enhances its financial flexibility and mitigates concentration risk.
Its debt-to-equity (D/E) ratio remained low at 2.46x at end-3Q24.
Fee and service income increased y/y with non-life premium sales growth. Most of TIDLOR’s fee and service income was derived from insurance sales and services. While insurance premium sales seasonally peak in 4Q, sales in 2Q are usually lower than in 1Q, while sales in 3Q are higher than in 2Q.
Fee income increased 5.5% y/y but declined 2.5% q/q in 3Q24. The y/y increase was attributed mainly to a 15.5% y/y increase in non-life insurance premium sales, amounting to THB2,376mn. Meanwhile, the q/q decline was attributed to the decrease in credit-life insurance premium sales, which normally vary with new loans.
Currently, TIDLOR has three major channels for insurance sales, including (i) traditional branches and telesales (i.e., Shield Insurance), (ii) insurance platform for sub-broker (i.e., Areegator), and (iii) self-service digital broker (i.e., heygoody).
Cost-to-income ratio continued to improve y/y. With most of its operating costs being fixed, TIDLOR’s cost-to-income (C/I) ratio should continue to reduce as its top line grows.
Operating expenses (OPEX) increased 13.8% y/y and 5.3% q/q in 3Q24, due to the expansion of its lending and insurance brokerage business, restructuring-related costs (THB40mn), and TVC (on insurance business), which was delayed from 1H24. Nonetheless, due to its effective cost management, C/I ratio declined y/y to 54.98% in 3Q24 (vs. 55.38% in 3Q23 and 53.42% in 2Q24).
Asset quality passed bottom. NPL ratio edged up to 1.88% at end-3Q24 (vs. 1.86% at end-2Q24) due to the slow economic recovery and loan portfolio contraction. However, the NPL ratio increased at a slower pace, supported by the company’s prudent credit approval strategy and proactive risk management approach (i.e., active loan write-offs).
Meanwhile, stage 2 loans increased to 17.6% at end-3Q24 (vs. 17.3% at end-2Q24 and 16.5% at end-1Q24) due partly to the Bank of Thailand (BOT)’s Responsible Lending (RL) measure. Note that the impact of the RL measure to Stage 2 loans was approximately 100bps in 2Q24, and the increase in Stage 2 loans as a result of the RL measure was immaterial in 3Q24.
TIDLOR set aside a higher credit cost of 3.91% in 3Q24 (vs. 3.57% in 2Q24), due to a higher level of loan write-offs, reflecting proactive risk management amid weakened debtor repayment capabilities, and higher provision to support future loan growth and cover potential future risks that could impact asset quality. With that, its coverage ratio increased to 230.6% at end-3Q24 (vs. 227.3% at end-2Q24).
NPL formation declined to 3.76% (vs. a peak level of 4.60% in 2Q24), and management believes it will decrease further in 4Q24F. This should be supported by a positive impact from the THB10k cash handouts in Sep. With that, it estimates its NPL ratio would remain around 2.0% at end-FY24F.
Meanwhile, management expects credit cost to decrease substantially in 4Q24F, supported by its high-quality new loans and its early (and aggressive) write-offs of those 2022 vintages.
Heading towards a strong 4Q24F. Given all its aggressive and proactive loan write-offs over the past several quarters, TIDLOR is now confident to resume portfolio expansion again in 4Q24F. Management revealed that it adjusted the credit policy in Oct and witnessed strong loan growth momentum in Nov. Nonetheless, with its 5.4% loan growth in 9M24, TIDLOR believes FY24F growth will be sub-10%.
TIDLOR expects NIM expansion to continue with higher risk-adjusted margins from newer vintages. Meanwhile, with two marketing campaigns launched in 4Q24F, on top of seasonal OPEX, C/I ratio should be higher q/q. In the meantime, management expects its NPL ratio to stay below 2%, while credit cost should be lower than that in 3Q24.
For the insurance brokerage business, it expects to achieve the mid-to-upper end of its premium sales growth guidance (of 10-20%) and will continue investing in insurance business growth.
We estimate its 4Q24F results to improve y/y and q/q, thanks mainly to higher interest income and lower credit cost. Meanwhile, we forecast FY24F earnings growth of 12% y/y, driven by higher interest income (from loan and NIM expansion) and higher fee income (from insurance premium sales).
Maintain BUY with a TP of THB21.00. Our TP is based on 1.7x FY25F P/BV, i.e., 1SD below its average P/BV. We believe TIDLOR’s asset quality should have passed the bottom and expect the counter to re-rate with the overall economic recovery.
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