• Strong auto cash loans and recovering HP/corporate loans to drive loan growth next year; NIM to drop by 20 bp with higher cost of funds
• Raised FY19F profit by 3% after assuming lower credit cost; estimate normalized credit cost at 60bp in FY19F
• Upgrade to OUTPERFORM with a higher TP of Bt95 (from Bt90), implying 10x FY19F P/E, 1.9x P/BV and 7.6% dividend yield

      Expect better loan demand in FY19 but NIM would be under pressure

We turn more positive on TISCO after the analyst meeting hosted by the CFO last Friday. Management expects loans to grow at single-digit rate driven by strong auto cash loans and better demand for HP and corporate loans. TISCO targets 15% p.a. growth in auto cash loans and wants to expand Somwang network to 400 branches (instead of 300) by 2021 by adding 50 branches a year; there were 227 branches at  end 3Q18. On a less positive note, we conservatively forecast NIM would drop by 25bp to 3.99% in FY19F due to higher funding cost. Cost-to-income ratio should stay in the mid-40’s as TISCO continues to expand the auto cash business.

Raised FY19F EPS on lower credit cost; strong asset quality

We raised FY19F EPS by 3% after revising down credit cost by 25bp to 0.75% and NIM by 15bp to 3.99%. The CFO guided normalized credit cost would be 60bp and TISCO does not need more general provision as NPL coverage was 193% with Bt7.1bn general provision at end 3Q18. We assumed 75bp credit cost in anticipation of provisions rising along with better loan growth next year. Moreover, recovering loan demand should help TISCO to grow banking fee income, e.g. from insurance products. Although NIM would drop gradually in FY19F due to higher funding cost, we forecast EPS will grow 8% yoy as TISCO can manage earnings by reducing general provisions. 

Upgrade to OUTPERFORM; TISCO offers highest ROE and dividend yield in the sector

There is strong earnings visibility due to the large provision buffer. The stock offers decent 7.6% dividend yield, which would limit downside to share price. Key risks are faster-than-expected interest rate hike and slower-than-expected loan growth given intense competition in HP and mortgage segments.