TMB Bank

TMB Bank Plc

Key points:

1. Loan growth: In line with expectations, +3.9% QoQ vs. +3.4% QoQ for 3Q12.
2012 loan growth was 14%.
2. Net interest margin: Better than estimated, +10 bps QoQ to 2.87%. Yield on
earning assets surprisingly rose 9 bps QoQ, despite interest rate cuts.
Meanwhile, cost of funds slipped 3 bps QoQ.
3. Non-interest income: Exceeded expectations, +46% QoQ, mainly driven by
fee income and extra items, i.e. gain on sale of assets. Outdoing our
estimates, net fee income grew 28% QoQ for 4Q12 and 25% for 2012.
4. Cost to income: Cost to income ratio fell to 54.1% from 57.5% for 3Q12,
more than we had anticipated.
5. Asset quality: TMB took us by surprise with provisions of Bt5.4bn (+350%
QoQ) - far larger than we had anticipated after seeing it reserve an average
of Bt1.1bn per quarter for 9M12, indicating a big balance sheet clean up.
For the year 2012, Bt5.3bn in extra provisions were added to the Bt3.5bn in
normal provisions. TMB sold Bt5.7bn in NPLs, thereby reducing NPLs 22%
QoQ and bringing NPL ratio down to 4.88% from 6.47% at 3Q12. LLR
coverage rose to 113% from 83% at 2Q12. We view this as a positive move.
Maintain Sell. We maintain SELL on TMB, although we raise target price (TP) to
Bt1.9 (1.4x 2013F BVPS) from Bt1.6/share (1.2x 2013F BVPS), after raising our
forecasts for 2013-2015 to adjust for the change in provision needs after the
surprise big balance sheet cleanup in 4Q12. Forecasts are brought up 27% for 2013,
18% for 2014 and 13% for 2015. Note that our target price partly reflects the M&A
target valuation as TMB is an M&A.