Thai Military Bank

Thai Military Bank Plc (TMB)

TMB has shown continuous development in earnings in 1H14. The
performance in the first half of the year has already close to the fullyear
target, so an ambitious goal for ROE of 15-16% in 2015-2016 is
not out of reach.

- On the right track. Top up fee income very quickly
Previously in early 2014, TMB believed it might not easily achieve the
ambitious target for net loan growth, NIM, fee income, cost to income ratio,
asset quality control by reducing NPL to 3% of total loan (separate financial
statement) with NPL coverage ratio of not lower than 130-140%, and ROE
of 14%. However, with good earnings in 2Q14, the bank has become more
confident that the full-year performance would not slide from the target.
With its deposit-led strategy to gather customers first (focusing on no fixed
and high rate deposit e.g. No-Fixed and ME), despite putting the bank to
face high funding cost, it was able to top up fee income from the customer
base via cross selling of funds and life insurance products. Consequently,
total fee income could grow remarkably in 1H14. Moreover, loan growth in
2H14 would be driven by SME loans from larger loan guarantee by the Thai
Credit Guarantee Corporation, which will be a positive factor for net loan
growth, yield, and NIM in second half of the year. In addition, TMB keeps its
ROE target in 2015-2016 at an aggressive rate of 15-16%, which is not out
of reach now.
- Up 2014-2015 forecast. Credit cost cut, fee income increased
We revise up FY2014-2015 earnings forecast respectively by 9.8% and
16.2% in order to reflect a cut of credit cost assumption as a result of better
asset quality and an increase of fee income growth that was previously
underestimated. Accordingly, FY2014-2015 net profit is projected to revive
significantly by 47.7%yoy and 14.4%yoy, above the sector’s average we
estimate at 2.6%yoy and 9.3%yoy.
- Current price cheaper than 10-year average
We recommend buying TMB. New 2014 fair value (GGM) is B2.90, based on
1.87x PBV, ROE forecast of 13.70%, and LT growth of 9%. The current
share price still provides total return of 14% and is cheaper than a 10-year
average price.