TMB Bank

20% above our forecast 

TMB reported a strong profit of Bt2.4bn for 3Q14, up 28% YoY but down 7% QoQ. The result was 20% above our model and 12% over the Bloomberg consensus, due to lighter loan loss provisioning than modeled (we had estimated provisions of Bt1.25bn; the bank set only Bt825m). Pre-provision operating profit was Bt3.8bn, up by 15% YoY and 12% QoQ, driven by ongoing loan growth and well-managed NIM. 9M14 earnings shot up 67% YoY to Bt6.5bn, which represents 78% of our FY14 projection.

Results highlights

Loans totaled Bt526bn at end-September, up by 3.2% QoQ and 5.3% YTD (in line with our assumption), led by the corporate and retail categories. Because of 3.2% QoQ loan growth and good funding cost management, 3Q14 NIM fattened 19 bps QoQ to 3.05% (in line with our number). Likewise, net interest income grew by 6% QoQ and 7% YoY to Bt5.5bn.

TMB set loan loss provisions of only Bt825m for 3Q14, down 31% YoY (but up 167% QoQ). LLPs were 34% below our assumption, but the loan loss coverage ratio slipped to 139% at end-September from 143% three months earlier. The bank’s NPLs/loans ratio was 3.4% at end-September, basically flat QoQ.

Non-interest income rose by 12% QoQ and 14% YoY to Bt2.2bn, whereas OPEX was Bt3.9bn, up by 4% QoQ and 3% YoY. Thus, TMB’s cost/income ratio declined to 50.3% in 3Q14 from 53.0% in 2Q14 and 53.1% in 3Q13.

Outlook 

We forecast that 4Q14 earnings will rise moderately YoY, driven by loan growth and a sustained NIM. The bank now looks likely to set much lighter FY14 LLPs than we currently assume in our model (Bt5bn).

What’s changed? 

Although TMB’s 9M14 earnings represent a hefty 78% of our FY14 forecast, we maintain our model unchanged for the moment. The Bank sector normally sets relatively heavy expenses in the final quarter of the calendar year

Recommendation

Our BUY rating stands. In contrast to retail-focused banks, TMB has largely escaped the effects of the slump in consumer spending and investment. Its lending focus is SME and corporate business. We expect TMB to sustain strong lending and earnings growth through FY15. There could also be scope for upside to our bottom-line forecast for next year.