Thai Military Bank

- 3Q15 profit beats projection. Asset quality becomes stronger  

TMB posted 3Q15 net profit at B2.81bn or a growth of 24.6%qoq and 17.9%yoy, 29% better than expected. Debt provision expense dropped significantly because the bank had sold B858m in NPL and as a result booked B285m in write back in this quarter, benefiting its asset quality. NPL to total loan ratio at the end of 3Q15 decreased below a target of 3.0% and NPL coverage ratio stayed high at 148.1%. Income from other operations declined, mostly capital gain, but it was compensated by increasing net interest income (thanks to growing loans and increasing NIM) and fee income (mostly from bancassurance and loan issuing). Overall, 3Q15 net profit could grow from 2Q15 as the positive factors had outweighed the negative factors. 

- Profit to weaken again in 4Q15, solid rebound in 2016  

We maintain our 2015-2016 earnings forecast, projecting net profit to weaken 15.8%yoy in 2015 and then grow 14.1%yoy in 2016 from likely decreasing debt provision expense and hope about improving business along with the economy. For 4Q15, we believe the bank’s earnings would weaken from 3Q15 because debt provision expense would become closer to a policy rate of 100bp; it is unlikely that TMB would continue selling NPLs because its NPL to total loan ratio has already been lower than a target of 3% at the end of 3Q15. NIM would stabilize, based on assumption that there are growths in every loan segment. Fee income from bancassurance and fund selling is still a major driving force of the business in a high season in 4Q15 and 2016, which is in line with the bank’s policy of increasingly focusing on non-interest income.

- Hold for dividend  

We reiterate our recommendation of holding TMB for dividend due to its very limited upside despite comparing to 2016 fair value of B2.68 (GGM, based on PBV of 1.47x and long-term ROE forecast of 12.3%).