TMB Bank

TMB Bank Plc (TMB)

Q2 2013 profit shrinks acutely qoq. Provision surges, main business still fine, but loans grow slowly

TMB announced 2Q13 net profit at only B252m, acutely lower than projected,
shrinking 86.2% qoq and 74.2% yoy as debt provision expenses surged by
B3.56bn, or 221.2% qoq and 282.5% yoy - higher than our projection at
B2.50bn. Credit cost rose from previously 98 bp to 307 bp, raising coverage
ratio (LLR/NPL) to 138.7% from 123.9% at the end of 1Q13, correspondent to
the BOT’s policy that banks should make high provision to handle risk from
fluctuating business, not from an increase in NPL as concerned. End-2Q13 NPL
has stayed at 3.70%, rising slightly from 3.66% of total loan at the end of
1Q13. However, excluding this item, norm profit would increase 27.1% qoq
and 91.8% yoy, because: 1) 2Q13 net interest income rose 2.6% qoq
and 20.4% yoy - as expected, in line with 2Q13 net loan growth at 2.2%
qoq and 10.2% yoy. Overall, 1H13 net loan grew only 2.5% from end-2012,
still very low compared to bank's target and our FY2013 projection at 12%
yoy. Profit growth was not significant due to repayment of corporate loans
focusing on short-term working capital loans. SMEs and retail loans has still
shown continuous growth, especially from medium and small SMEs (35% of
total loans). 2Q13 NIM increased by 9 bp to 2.89%, better than expected,
mostly from rise in yield. Funding cost rose slightly as fixed deposit increase
from 35.7% to 37.5%. 2) 2Q13 fee income grew 5.8% qoq and 30.8%
yoy - better than projected, mostly from growth of corporate and SME loanrelated
fee income, from bancassurance, funds sales and ATM card
registration. 3) 2Q13 other operating income grew 28.2% qoq and
51.1% yoy - lower than projected. We had projected B300m reversal of
provision that had been transferred to TAMC, but actually recognized at
B264m as reversal of this quarter's operating cost. Thus, 2Q13 operating cost
fell by 2.2% qoq and 5.1% yoy, decreasing 2Q13 cost to income ratio from
50.02% in the previous quarter to 46.31%.

- Likely to cut 2013 forecast after analysts’ meeting, to reflect higher provision
We are during a review of FY2013-2014 earning forecast to reflect higher than
projected provision and likely lower than predicted FY2013-2013 loan growth.
The revision will be presented after analysts' meeting on 19 July.

- Reiterate “HOLD”. During 2013 FV review. Very limited upside
We reiterate “HOLD” for TMB, but in the short term investors should gradually
sell. Although the share price has undergone significant correction recently,
TMB has risen as much as 25% since the beginning of the year until present,
the most among peers. Also, the current share price has PBV of 1.7x, which is
close to PBV of 1.8x of 2013’s fair value (GGM, with long-term ROE forecast of
14%) before revision at B2.40, so downside might be seen after a forecast cut.