TMB Bank

TMB Bank Plc (TMB)
- 3Q13 profit recovers strongly. Disappointing loan growth negated by NIM. Provision normalizes
TMB reported 3Q13 net profit at B1.87bn, 7% higher than our projection, skyrocketing
642.3%qoq and 67.1%yoy due to the following factors. 1) Debt provision decreased
66.5%qoq (but stabilizing yoy) – as expected. Credit cost normalized to 101bp from
307bp in 2Q13 in which the bank had made a countercyclical provisioning. The asset
quality remained strong; NPL dropped to 3.50% of total loans after touching 3.70% in
2Q13, so coverage ratio (LLR/NPL) at end-3Q13 jumped to 145.6% from 123.9% at end-
2Q13. 2) Net interest income grew as much as 6.3%qoq and 17.3%yoy in 3Q13 –
better than expected, thanking to an interest income from debt restructuring (one-time
recognition). Overall net loan growth during the quarter was still in line with our projection
at 2.4%qoq and 9.1%yoy. 9M13 net loan growth increased to 5% from end-2012, but still
lower than FY2013 target we have estimated at 10%yoy because of high repayment of
short-term working capital loans from corporate debtors. Continuous growth was still seen
from SME and retail loans, especially medium and small SMEs (37% of total loans),
boosting yield in 3Q13 by 21bp to 5.12%. Funding cost shifted slightly following an
aggressive increase of 8%qoq and 8.4%yoy in deposit gathering, mostly No Fixed and ME
deposits, as well as nine-month fixed deposit gathered during 4 September to 4 October
2013. NIM rose to touch 3.04% for the first time in several years. Excluding the interest
income from the debt restructuring, NIM would still stabilize qoq at 2.89%. Pressuring
factors in this quarter were as follows. 1) Fee income weakened 8.6%qoq (but still
growing 11.8%yoy) – worse than projected, due mainly to a decrease in fee income
from non loan-related transactions such as mutual fund selling, insurance selling, money
transferring, which had shown remarkable growth in 2Q13. Income from other operations
also declined 29.3%qoq and 9.4%yoy, mostly a decrease of profit from foreign exchange
transactions. 2) Operating expenses in 3Q13 increased 8.3%qoq (but staying flat
yoy) – lower than expected, mostly an increase in personnel and marketing expenses.
- Maintain forecast. Loan lower than expected but ROE to hit target of 10%
We maintain our FY2013-2014 earnings forecast. 9M13 net loans growth was low
compared to FY2013 target as TMB needs to balance loans portfolio by making corporate
loans one-third of total loans and the rest for SME and retail loans that provide better
yield. TMB's 2013 target is to boost ROE to 10%. In 9M13, the bank could increase ROE to
9.2%, thus substantially alleviating the concern. We have a positive outlook toward TMB’s
positive development in the past, which includes increasing portion of low-cost CASA and
No Fixed and ME deposits to 62% of total deposits, resulting in NIM getting closer to the
sector’s average. NIM in 4Q13 would stabilize close to that of 9M13. Likewise, fee income
in 4Q13 would continue growing from 9M13 as it is a high season for non loan-related
businesses.
- Sell. Share price already exceeds fair value. Div yield not worth investing
We reiterate SELL. Even though the share price has undergone correction, it still exceeds
FY2013 fair value of B2.40 (GGM, 1.70x PBV, 13.70% long-term ROE). Moreover, dividend
yield is very low, not worth investing.