TISCO – 3Q24: Met expectations

In line with expectations, 3Q24 reflected stable asset quality (QoQ stable NPL ratio with lower credit cost), contracting loans, better NIM, QoQ better fee income and lower opex. We cut TP to Bt103 from Bt105 as we raise our 2025F credit cost to fine tune with the new guidance. We keep TISCO as Neutral due to an attractive 7.96% dividend yield.

3Q24: Essentially in line. TISCO reported 3Q24 net profit of Bt1.71bn (-2% QoQ,
-9% YoY), in line with INVX and consensus forecasts.

Highlights:

Asset quality: NPL ratio was stable QoQ at 2.44% with a 2.7% QoQ decrease in HP NPLs but a 2.4% QoQ increase in title loan NPLs. Credit cost was lower than expected, easing 8 bps QoQ to 0.62%. LLR coverage fell to 159% from 163% in 2Q24. TISCO expects credit cost to be >0.5 to <0.7% in 2024 and 1% to slightly above 1% in 2025 upon resumption of a normalized credit cost after depleting excess LLR. We raise our 2025F credit cost by 10 bps to 1.05% and forecast credit cost at 0.6% (+33 bps) in 2024 and 1.05% (+45 bps) in 2025.
Loan growth: -1.5% QoQ, -0.8% YoY, -2.1% YTD. There was a QoQ contraction in all segments, excepting car title loans (+1.9% QoQ, +6.9% YoY, +3.6% YTD). We maintain our loan growth forecast at 0% in 2024 and 1% in 2025.
NIM: +5 bps QoQ (-30 bps YoY). Yield on earning assets rose 8 bps QoQ (+5 bps YoY). Cost of funds rose 3 bps QoQ (+42 bps YoY).
Non-NII: -10% QoQ (+13% YoY) due to lower gain on financial instruments (mainly forex) from the higher-than-usual level in 2Q24. Net fee income rose 2% QoQ (+5% YoY) mainly from brokerage fees.
Cost to income ratio: +23 bps QoQ (-61 bps YoY) to 47.96%, due to softer toplines. However, opex decreased 3% QoQ (-2% YoY).

Cut 2025 earnings. We cut our 2025F by 4% as we raise our credit cost forecast by 10 bps to fine tune with the latest guidance. In 2025, we expect earnings to fall 6%, with a 45 bps rise in credit cost (back to a normal level), a 9 bps rise in NIM (assuming policy rate cuts) and 1% loan growth. 9M24 earnings account for 75% of our full-year forecast (-5%). We expect 4Q24 earnings to be stable QoQ (higher ECL, higher non-NII) but lower YoY (higher ECL).

Attractive dividend yield. Although we forecast a contraction in earnings in 2024 and 2025, we expect TISCO to sustain DPS at Bt7.7 in 2024 (89% payout) and 2025 (96% payout), giving high dividend yield of 7.96%. With a high capital adequacy ratio at 19% (17.2% for tier-1) and limited loan growth, we expected it to keep its DPS high for several years. Its policy dividend payout ratio is no higher than 100%.

Maintain Neutral. We keep TISCO as Neutral with a cut in TP from Bt105 to Bt103 (based on 1.9x 2025F PBV) as we raise our 2025F credit cost.

Key risks: 1) Asset quality risk from weaker-than-expected and uneven economic recovery, 2) falling used-car prices, and 3) ESG risk on market conduct.