Thai Military Bank

2015 ROE of 15% not out of reach BUY

Thai Military Bank Plc (TMB)

TMB is still rewarding shareholders with profit and ROE, plus good asset quality and

strong financial position. Therefore, we upgrade PBV to 2.19x, resulting in new 2014

fair value of B3.40.

- Deposit-led strategy pushes TMB beyond expectation

TMB has shown continuous development in line with its major target in

2014-2018 of becoming a leader in deposit and loan products and

distinguished service under a concept of “Make the Difference” to generate

sustainable ROE growth. The current deposit-led strategy has been greatly

successful in gathering retail customers for cross selling, which has led to

fee income growth. Bancassurance and fund selling businesses have

become more aggressive, while funding cost dropped significantly until

getting close to the sector’s average. In addition, an increase of proportion

of SME loan to 36% of total loan has boosted NIM to 2.94%, also close to

the sector’s average.

- Up 2015 ROE forecast to 14.5%

We maintain our earnings forecast for FY2014 but revise up FY2015

earnings forecast by 7.0%. Net loan growth forecast in 2015 is increased

from 8.0%yoy to 12.0%yoy, while cost to income ratio forecast is reduced

to 46.4%, resulting in 2015 ROE forecast of 14.5%, versus 13.7%

previously, which is closer to TMB’s target for 2015. After the revision, 2015

net profit growth is estimated at 22.0%yoy, up from 14.0%yoy.

- New 2014 fair value is B3.40

We recommend buying TMB and select it as a top pick of medium-sized

hospitals. New 2014 fair value is B3.40 and new 2015 fair value is B3.76,

based on 2.19x PBV, from 1.87x previously, using GGM method, with longterm

ROE forecast increased to 14.5% from 13.7%. The current share price

provides 12.41% return in total (average dividend yield of 1.92% included)

and is being traded on PBV of 2x, close to the past 10-year average.