TMB Bank

We estimate third-quarter net profit at Bt2.18 billion, a decline of 3.2 per cent quarter on quarter (QoQ) and 8.4 per cent year on year (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, net interest marging (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. We project TMB’s net profit to weaken 15.8 per cent YoY in 2015 and then grow 14.1 per cent 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 stabilise 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. We recommend only holding TMB for dividend since it has a limited upside from 2015 fair value of Bt2.50 (GGM, based on return on equity forecast of 12.3 per cent). Investors can also switch to Thanachart Capital (TCAP), another small-cap bank with lower price to book value of only 0.7 times and better net profit growth outlook in 2015-16.