Non-Bank Sector Earnings Growth to Slow in Second Quarter as Margin Narrow

KGI Securities anticipates weaker earnings growth for the non-banking sector in the second quarter as a result of credit cost pressure and a slower pace of fee income growth, while solid loan growth will be offset by margin contraction. Still, maintaining the bullish outlook on SAWAD and TIDLOR.

Due to domestic economic momentum slowing and consequently exerting pressure on credit cost, the brokerage expects non-banks to largely post slower earnings growth in 2Q23. Total non-bank earnings under KGI’s watch (excluding SINGER) would increase by 0% quarter over quarter but decrease by 3% year over year in 2Q23 and 1% in 1H23. 

The QoQ decline reflects sluggish earnings for KTC and TIDLOR due to high base fee income in 1Q23, whereas the YoY fall shows higher credit cost. 

Meanwhile, SAWAD is expected to maintain strong earnings growth as motorbike sales rise. The company’s aggressive motorcycle H/P strategy will help it sustain solid loan growth while improving earnings. Earnings for the first half of 2023 should amount to about 47% of our full-year prediction, taking into account 2Q23 results. 

Overall, KGI predicts reduced farm income and domestic consumption to strain asset quality while large NPL inflows drove credit cost higher, especially in companies with thin bad debt cushions like MTC. SAWAD, on the other hand, will be able to keep its credit cost low thanks to its controllable NPL, whereas KTC and TIDLOR will need to manage it because of their substantial bad debt cushion. 

At this point, the brokerage firm maintains its “Buy” rating for SAWAD and TIDLOR but gives a “Neutral” call to the non-banking sector.