• Maintain loan growth at mild-negative to flat this year; revenue growth is a greater concern than asset quality
• Cut FY18F/19F profit by 2%/5% on slower loan growth and weaker NIM; see mild impact on new HP regulation
• Maintain NEUTRAL rating, lowered TP to Bt90 (from Bt98), implying 1.9x P/BV and 10.4x FY18F P/E; expect earnings to grow by 8% p.a. (3-year CAGR) over FY17-20F

      Loan growth a greater concern than asset quality in the long run

We got neutral feedback at the analyst meeting with the CFO yesterday. Management keeps loan growth target at ‘-3% to 0%’ for this year. Retail loans should be stable yoy as rising auto cash loans would fill the vacuum created by the divested unsecured loan portfolio and a smaller mortgage loan portfolio. Corporate and SME loans should ease due to loan repayments this year. The CFO explained the larger NPL for the SME account was due to specific issues, and not systemic. The bank did not book a provision because collateral value covers the loan amount. We are less concerned about the bank’s asset quality as NPL coverage remains high at 183% with Bt6.6bn general provision in 2Q18.

Expect weaker NIM in 2H18; see mild impact on new HP regulation

We cut FY18F/19F EPS by 2%/5% after revising down loan growth and NIM (details on p.2). We are concerned about NII growth as auto cash loans would be the only growth driver; it is challenging to grow other loan segments. Although strong auto cash loan growth would help the bank to sustain loan yields, NIM would drop gradually due to higher funding cost. Note that TISCO will divest credit card loans (Bt2.5bn) in 2H18 and attract more long-term deposits during the period of rising interest rates. Under the new HP regulation, the bank expects lower debt collection fees (Bt100 per contract from Bt300) to reduce fee income by Bt100m p.a. starting 2019. The impact of new penalty fee rate, ‘effective rate+3%’ instead of ‘MRR+10%’, would be limited for this year and next as it applies only to new customers. 

NEUTRAL, lower TP of Bt90; high ROE and dividend yield but limited upside

We like TISCO for offering strong asset quality and high ROE. However, we are concerned about loan growth profile given intense competition in HP and mortgage segments. We see limited upside risk to our EPS forecast given a small rom to reduce credit cost. We recommend switching to KKP for offering better risk-reward and stronger loan growth profiles.