TMB Bank
Earnings beat all forecasts, due to lighter LLPs than modeled BUY
TMB Bank Plc
71% above our forecast
TMB posted a strong profit of Bt3bn for 4Q14, up by 65% YoY and 25% QoQ. The result was 71% above our model and 35% over the Bloomberg consensus, due to lighter loan loss provisioning than expected (we had assumed provisions of Bt2.7bn; the bank set only Bt1.1bn). Pre-provision operating profit was Bt3.8bn, down by 5% YoY and 2% QoQ, due to fee income slippage. FY14 earnings shot up 66% YoY to Bt9.5bn, which represents 115% of our earlier projection.
Results highlights
Loans totaled Bt530bn at YE14, up by 1.1% QoQ and 6.5% YoY (in line with our assumption), led by the corporate and retail categories. Because of the QoQ loan growth and good funding cost management, 4Q14 NIM fattened 11 bps QoQ to 3.16% (in line with our number). Likewise, net interest income grew 5% QoQ (but dipped 3% YoY) to Bt5.8bn.
TMB set loan loss provisions of only Bt1.1bn for 4Q14, down 34% YoY (but up 36% QoQ). LLPs were 60% below our assumption, but the loan loss coverage ratio rose to 157% at YE14 from 139% at end-September. The bank’s YE14 NPLs/loans ratio was 3.4%, basically flat QoQ.
Non-interest income increased by 11% QoQ and 7% YoY to Bt2.4bn, while OPEX was Bt4.4bn, up by 14% QoQ and 7% YoY. Because OPEX expanded faster than fee income, TMB’s cost/income ratio inched up to 54.0% in 4Q14 from 51.3% in 3Q14 and from 50.1% in 4Q13.
Outlook
We forecast that 1Q15 earnings will rise modestly YoY, driven by continuing loan growth and a sustained NIM. The bank now looks likely to set much lighter FY15 and FY16 LLPs than we had earlier assumed in our model (Bt5bn for both years).
What’s changed?
Given good asset quality management, we have cut our loan loss provisioning assumptions for FY15 and FY16 by 10% to Bt4.5bn for both years. Furthermore our effective corporate tax rate assumptions decline from 20% to 17% for FY15 and from 20% to 19.3% for FY16. The lower corporate tax rate assumptions reflect tax incentives tied to troubled debt restructuring. Hence, we have raised our TMB earnings forecasts by 12% for FY15 to Bt10.5bn and by 19% for FY16 to Bt12.5bn.
Recommendation
Because of our earnings forecast upgrades, we have raised our YE15 target price to Bt3.5, still pegged to a PBV of 2.0x (derived from industry growth of 5%, average ROE of 14% and Ke of 9.5%). Our BUY rating stands, premised on expectations of corporate and SME business growth. TMB should sustain strong lending and earnings expansion through FY15 and FY16.
