Thai Military Bank

Thai Military Bank Plc (TMB)

- 2Q14 profit beats projection, thanks to write back of provision excess
TMB’s 2Q14 earnings were substantially better than expected. The net profit
was B2.58bn, leaping as much as 60.8%qoq and 922.2%yoy because of
lower provision from selling of B2.4bn of NPLs. Due to a very strict debt
provision policy the bank has implemented, the NPL selling allowed a write
back of excess provision. After the selling, a ratio of NPL to total loans
decreased from 3.59% at end-1Q14 to 3.15% (separate financial
statement). Normalized profit remains strong as projected. Both net interest
and non-interest income improved. Fee income grew 18.5%qoq, mainly
from increasing fee income from sales of mutual funds, insurance contracts,
and loan transactions, while other non-interest income also rose from
B131m of gain on sales of investment/assets in this quarter. Operating
expense dropped slightly from the prior quarter due to lower personnel
expense. Since the income grew at a more rapid pace than the cost, cost to
income ratio decreased to 51.35%.
- To revise up forecast
We will revise up FY2014 earnings forecast after the analyst meeting on July
16 because 1H14 earnings already made up as much as 54% of the full year
forecast. A major change would be a cut of debt provision or credit cost for
FY2014 which was previously projected at 110bp, versus an actual figure of
only 58bp in 1H14. As a result, FY2014 net profit would grow significantly
with stronger asset quality than 2013’s.
- Current price cheaper than 10-year average
We recommend buying TMB. 2014 fair value (GGM) is B2.88, based on
1.87x PBV, ROE forecast of 13.70%, and LT growth of 9%. The current
share price still provides total return of 14% and is cheaper than a 10-year
average price, thus reducing a risk of short-term profit-taking after the
earnings declaration.