Thai Military Bank

Thai Military Bank Plc (TMB)  

 

- 3Q15 profit to be affected by lower NIM. No special provisioning 

We estimate 3Q15 net profit at B2.18bn or a decline of 3.2%qoq and 8.4%yoy. Although operating expenses would decrease in 3Q15, such a positive factor would be offset as income from two main sources, which are net interest income and non-interest income, would weaken. Meanwhile, debt provisioning expense would increase slightly following net loan growth in this quarter. Regarding the net interest income, NIM would weaken; although net loan would grow in every segment, a loan rate cut in late 2Q15 could be a negative effect; funding cost would remain flat. For the non-interest income, fee income, mostly from bancassurance and fund selling, would shrink after growing strongly earlier, especially because of sluggish fund selling. 

- Fee income is major boost 

We project TMB’s net profit to weaken 15.8%yoy in 2015 and then grow 14.1%yoy in 2016 from the low base and hope about improving business along with the economy. For 4Q15, we believe the bank’s earnings would stay close to that of 3Q15; NIM would start to stabilize and growth would be seen from every segment of loan except small SMEs, to which the bank still applies a stringent policy. Fee income from bancassurance and fund selling would be a major boost for net profit when entering a high season in 4Q15 and in 2016; this is in line with the bank’s policy of shifting its focus to non-interest income instead. Credit cost is projected to rise in 4Q15, but already in our forecast. 

- Limited upside. Switch to TCAP 

We recommend only holding TMB for dividend since it has a limited upside from 2015 fair value of B2.50 (GGM, based on ROE forecast of 12.3%). Investors can also switch to TCAP, which is another small-cap bank but has lower PBV of only 0.7x and better net profit growth outlook in 2015-2016.