TMB Bank

TMB Bank Plc (TMB)

- ROE target not out of reach if NIM stays flat and debt provision decreases.
Despite the slowing economy, TMB has an ambitious goal with FY2014 ROE target of
14%. During the two previous quarters, ROE has increased and made the average of
12%, so it would not be difficult for ROE to reach 14%. FY2014 debt provision is
expected to decrease from credit cost of 150bp in 2012-2013 to 100bp (still higher
than our forecast at 110bp). FY2014 NIM is projected close to 2013 at 3.0-3.1%
(higher than our projection at 2.94%). FY2014 net loan growth is expected at 8-
10%yoy, close to 2013 and our forecast of 8%yoy. TMB expects that, during the
political turmoil, corporate, SME and retail loan would grow at the similar rate of
10%yoy. Moreover, TMB expects FY2014 fee income growth to improve from
19%yoy to 30%yoy (higher than our FY2014 projection at 15%yoy) in order to
cover its weak point when compared with other big banks that have a high ratio of
fee income to earnings assets of almost 2% (versus 1.17% of TMB). TMB would
boost cross sales for bancassurance and fund selling in 2014, as well as fee income
from trade finance, cash management and Fx. Moreover, TMB aims to have a good
control on operating cost. Cost to income ratio is projected to drop from 50% in
2013 to 49% in 2014, lower than our projection at 49.5%. FY2014 income is
expected to grow twice faster than expense. TMB plans to lay of 500 employees in
2014 and hire new employees, attempting to reduce expense as well as improve
efficiency. The strategy is projected to raise TMB's ROE to 14%.
- Maintain forecast. We project ROE at 12%
We maintain TMB's FY2014-2016 earnings forecast. FY2014 net profit is projected to
leap by 34.5%yoy, even under more conservative assumption than the bank’s. We
still have a positive outlook on TMB's recent improvement: TMB's high-yield loan has
increased to compensate for low-yield corporate loan, and low-cost CASA deposit
and no fixed and ME deposit have made up 62% of total deposit. Thus, NIM is likely
to grow closer to the sector's average.
- "HOLD". "BUY" when risk is lower
We reiterate to hold TMB. Current price has substantially undergone correction,
diving below FY2014 fair value of B2.62 (GGM, 1.70x PBV, 13.70% long-term ROE).
However, we might upgrade our recommendation to BUY if the risk from the political
turmoil is lower, as the price has over 20% upside.