Thai Military Bank

Thai Military Bank Plc (TMB)  

 

- Profit to dive in 1Q15 as tax expense returns to normal   

We estimate 1Q15 net profit of TMB at B2.44bn, plunging significantly 17.9%qoq (though still growing 52.4%yoy) mainly because tax expense has increased to a normal level in this quarter after a reversal to income was seen in the prior quarter. However, the core business has improved from 4Q14; net interest income growth and net loan growth tend to increase in 1Q15. NIM may decrease as a result of the recent interest rate cut (MLR cut of 12.5bp and fixed deposit rate cut of 10-12bp), increasing launch of low-yield short-term corporate loans, and decreasing fee income after passing a high season for both bancassurance and fund selling, but there is still compensation from decreasing operating expense after a high season as well. Accordingly, excluding the aforementioned tax expense, normalized profit could still show growth.   

- Over 16-17% ROE targeted next three years, rivaling big banks  

We maintain our forecast for FY2015-2016, projecting net profit of TMB to show a slight growth of 4.3%yoy in 2015, mainly because of decreasing extraordinary income, but remarkable growth of 18.3%yoy in 2016, from increasing launch of high-yield loans, rising NIM and fee income, and strong asset quality. In 2015, the bank will adhere to its long-term plan by using deposits as a spearhead to boosting the business growth in the long run, expanding its customer base and penetrating into a higher-yield market.  In addition, the bank will improve its transactional banking service to enhance its competitiveness in the long run. All these factors would boost ROE to the target of 15% in 2015 and help the bank achieve ROE of 16-17%, rivaling to big bank’s, within the next three years. 

- Top pick of medium-sized banks  

2015 fair value is B3.60 (GGM, based on PBV of 2.08x, ROE forecast of 13.70%, and LT growth of 9%). The current share price provides total return of over 20% (dividend yield included).