Ngern Tid Lor Public Company Limited (TIDLOR)’s loan is expected to grow 16-18% in 2021-2023 on the back of 1) branch expansion, 2) loan demand recovery off a low base and 3) its superior products vs peers.
TIDLOR plans to open 500 new branches by 2023 (up 46% from 1,076 branches as of currently). As a result, Maybank Kim Eng Securities (Thailand) (MBKET) forecast TIDLOR’s FY21- 22E non-NII to grow 27-29% due to strong insurance brokerage income growth of 35-40%, which offsets the weak debt collection fee (-44% YoY in 2020). Its cost of funds should gradually decline as its TRIS rating was upgraded to A from A- in May 2021, vs BBB+ for MTC and SAWAD.
Even though TIDLOR has a higher asset quality risk vs peers given its higher loan to value policy of 70-80% vs 30-50% for MTC and SAWAD, the company has a more conservative provisioning policy vs peers as evident from its highest NPL coverage ratio of 329% and 5.0% loan loss reserve (LLR) to loans ratio in the sector as at end 1Q21.
MBKET forecasts TIDLOR’s NPL coverage ratio and LLR ratio to decline to 220% and 3.7%, respectively, in 2023. Its NPL ratio should gradually increase from 1.5% in 1Q21 to 1.7% in 2023. Its revolving cash card provides liquidity to its customers and reduces OPEX from the lower activity via branches as its customers can withdraw cash anytime via the bank’s ATMs. TIDLOR currently offers this cash card to motorcycle title loans and plans to offer it to auto title loans in 3Q21.
Therefore, MBKET expects earnings of TIDLOR to grow 25-39% YoY in 2021-23E, from strong revenue growth from both NII and non-NII. Also forecasting cost-to-income ratio to
fall from 61.5% in 2020 to 53.0% in 2023, thanks to better operating leverage which should lead to OPEX growing at a slower rate than revenue.
Given its high NPL coverage, TIDLOR assumes a lower credit cost of 50-85bp for 2021-23F to support earnings growth. TIDLOR is well-equipped for the weak economy and should benefit when it recovers, thanks to its focus in the upcountry (80% of total loans), and limited exposure on SMEs and small-ticket loans.
MBKET has given a “BUY” rating on TIDLOR with a target price of 50 baht.