TMB Bank

TMB Bank Plc (TMB)
3Q13 profit to surge. Loans fail to reach target but provision back to normal
TMB's 3Q13 net profit is projected at B1.76bn, skyrocketing by 597%qoq and
22.3%yoy, mainly due to a projected decrease in 3Q13 debt provision by
69.3%qoq and 8.4%yoy. 3Q13 credit cost would drop from 307bp in 2Q13 to
92bp. As end-2Q13 coverage ratio (LLR/NPL) rose to 138.7%, implicitly high
provision is not necessary. Also, 3Q13 NPL did not rise like in 2Q13. However,
core businesses have been quite weak in this quarter due to the following: 1)
3Q13 net interest income is projected to drop by 1.5%qoq (growing
8.7%yoy), contrast to net loans growth projected at 2.5%qoq and 9.2%yoy.
Overall, 9M13 net loans growth is projected rise from end-2012 to 5.1%, which is
very low compared to TMB’s FY2013 target at 12%yoy (we project at 10%yoy),
as most repayment from corporate loans are short-term working capital loans, so
the growth would not reach the target. SME and retail loans have grown
significantly, especially medium-small SME loans (35% of total loans), boosting
3Q13 yield by 10bp to 5.09%. Funding cost has risen along with aggressive
deposits gathering by over 5.5%qoq and 5.9%yoy, mostly No Fixed and ME
deposits. 2) 3Q13 fee income is expected to fall by 3.4%qoq (growing
18%yoy), mostly due to decrease in fee income from non loan-related
businesses: fund selling with good growth in 2Q13, whereas fee income from
some non loan-related businesses (e.g. bancassurance, ATM) grew well. 3) 3Q13
operation cost is projected to rise by 14.9%qoq and 5.9%yoy, mostly
marketing expense to promote sales. Moreover, there was B264m reversal of
other expenses for share of profit from TAMC in 2Q13 but not 3Q13. Thus, 3Q13
cost to income ratio might rise from 46.31% to 53.53%.
- Maintain 3Q13 earnings forecast. Loans not reach target but ROE may get close to 10%
We maintain TMB's FY2013-2014 earnings forecast. 9M13 net loans growth is
projected very low compared to FY2013 target, as TMB needs to balance loans
portfolio by making corporal loans one third of total loans and the rest for SME
and retail loans that provide better loan yield. TMB's 2013 target is to boost ROE
to 10%. As 1H13 ROE was only 7.4%, 2H13 earnings result might rise
significantly from 1H13 due to lower debt provision, after countercyclical
provisioning of B4.14bn provision in 1H13 to handle economic fluctuation.
Moreover, low-cost CASA and No Fixed and ME deposit rose to 62.5% of total
deposit, boosting TMB's NIM close to the sector average. 4Q13 NIM is likely to
stay close to 9M13 NIM, as well as fee income. 4Q13 growth is likely to be
positive like 9M13, as 4Q13 is a high season for non loan-related businesses.
- Reiterate "SELL". Share price higher than fair value. Dividend low
We reiterate "SELL". Though share price has undergone correction, it still exceed
FY2013 fair value of B2.40 (GGM, 1.70x PBV, 13.70% long-term ROE). Moreover,
its dividend yield is very low, not suitable for investing.