TMB Bank

TMB Bank Plc 

 

Investment thesis

We attended TMB’s analyst meeting yesterday, hosted by bank Chief Executive Boontuck Wungcharoen. The bank is placing an emphasis on the SME and retail categories, targeting rising credit cost to 1.0% in FY15. All financial guidance is on par with our prudent forecast. We maintain our earnings projections at Bt9bn for FY15 and Bt11.3bn for FY16. There would be upside to our FY15 earnings forecasts if TMB were to deliver fee-income growth of 30% (our model assumes fee income growth of 17%) and no negative surprise for extra loan-loss provision LLP in 2H15. We maintain a TRADING BUY rating on TMB.

Loan growth cut to 6-8% in FY15

Loans totaled Bt550bn at the end of June, up by 3.8% QoQ and 7.8% YoY (led by the retail and SME categories). Given its prudent policy based on the extant slower economic recovery, TMB has cuts its FY15 lending growth target range of 6-8% from its former 8-10%. At this stage, we feel that the bank’s guidance sounds accurate and likely as its 1H15 loans grew about 4%. TMB also believes it can achieve NIM of 3% by increasing its focus on high-yield SME and retail business and through funding cost management (it posted 3.02% for 1H15). We assume an FY15 NIM of 3.1%. Note that management assumes 2015 GDP growth of 3.0%.

Fee income growth cut to 30% from the former 30-40%

Management guides that fee income growth will be slashed to 30% in FY15 from its former 30-40% following slippage of 1.5% last year, driven by transaction fees, trade finance, bancassurance sales commissions and credit-related fees. We, however, assume that fee income will grow only 17%. Note that its 1H15 fee income grew 30% to Bt4.5bn. However, we expect its 2H15 fee income to decline for 1H15 due to slower consumption and slower lending. If the bank is able to deliver fee income growth as it guided, there is scope for upside to our FY15 earnings projections.

Credit cost rising to 1% … in line with our model

TMB raises its credit cost at equal to 1.00% of gross loans (from its former 80 bps), which management says reflects a prudent policy for asset quality this year. The new number is also aligned with our forecast. We also forecast that the bank’s FY15 LLP will be Bt5.5bn, up 60% YoY. The bank aims to keep its YE15 NPL/loan ratio at the level posted for YE14 of not more than 3.0%. It should be noted that it plans to maintain the ratio in the range of 140-150% this year. Besides that, about 50% of its SME NPLs (Bt15bn) are fully guaranteed by TCG.

ROE target is cut to 13-14% for FY15

Management has reduced its ROE target to 13-14% in FY15 from the former 14-15%. However, we conservatively maintain our FY14 ROE assumption at 11.9%, as we do not anticipate the same growth rates for lending or fee income as the bank’s guides for.