Thai Military Bank

Thai Military Bank Plc (TMB)

- 2Q14 profit to revive strongly. Core business to rebound
TMB's 2Q14 net profit is anticipated at B1.78bn, growing 11.4%qoq and
608.6%yoy. Both net interest income and non-interest income are expected
to rebound. In terms of non-interest income, fee income is expected to rise
by 9.7%qoq thanks to growing corporate loans, and other non-interest
income is projected to grow 6.7%qoq owing to profit from investment and
assets selling. Operating expense is likely to stay unchanged, while income
is likely to grow at a faster pace. Therefore, 2Q14 cost to income ratio is
projected to drop from 1Q14 to 52.67%. 2Q14 net interest income is likely
to rebound, and net loan growth is expected at 3.0%qoq and 11.1%yoy,
mainly from corporate loan and medium SME loan. Overall, 1H14 net loan is
projected to grow 3.30% from end-2013, quite low compared to our FY2014
net loan growth forecast of 8%yoy. However, 2Q14 NIM would stay flat at
2.83%. Banking sector and TMB's NPL has increased due to the slowing
economy, mainly from SME loan. However, this is not worrying because NPL
has increased at the slower rate than 1Q14. We project 2Q14 credit cost at
92bp, close to 1Q14.
- Maintain forecast. Hope for rebound in 2H14
We maintain TMB's FY2014 earnings forecast. 2H14 earnings result has an
upside because debt provision might be decreased. We preliminarily project
FY2014 credit cost at 110bp, while 1H14 credit cost is probably 91bp.
Moreover, TMB has aimed to aggressively decrease NPL; lowering NPL to
total loan ratio from 3.59% at present to 3% by end-2014. If TMB can
reduce NPL, debt provision would drop for the remainder of 2014.
- Up FY2014 fair value. BUY
We upgrade our recommendation from HOLD to BUY and revise up TMB's
FY2014 fair value from B2.62 (1.70x PBV, 8.2% LT growth) to B2.88 (GGM,
1.87x PBV, 13.70% ROE forecast, 9% LT growth). Current share price
grants over 17% return.