TMB Bank

Investment thesis

TMB’s C-suite reiterated that its 1Q16 performance could return to par with its FY16 financial guidance, we garnered from discussions with TMB on Friday. We intimated from this is that TMB might post better FY16 operations than our forecasts, on bigger loan growth and higher fee income growth. Both could trigger scope for earnings upsides in FY16 and FY17. Yet, we would like to see its 1H16 performance first before making any earnings revisions. Presently, we have kept our profit projections of Bt11.3bn for FY16, a jump of 21%. Given strong earnings growth profiles with well managed asset quality, we maintain our BUY rating for TMB.

Expect strong 1Q16 profit growth of 37% driven by strong loan gains

We forecast that TMB will deliver strong 1Q16 earnings growth of 37% YoY to Bt2.3bn. The strong climb could be attributable to strong loan growth and surging fee income growth. Management expected its 1Q16 lending to rise 1-2% QoQ and 10% YoY on par with its FY16 lending growth target of 8-10% following 9.5% growth last year. We forecast that TMB will post 1Q16 loan growth of 1.5%, fee income growth of 25% and solid NIM 3%.

Stronger loan growth and fee income will give scope for upsides …

The bank claimed that SME and retail loans (especially for mortgage loan) could be key drivers for 8-10% loan growth in FY16 with good NIM. TMB expects to see its FY16 NIM in the range of 3.0-3.3% from 3% last year. Its strategy will be focused on a cheap deposit-led strategy, with targeted deposit growth of 8-10% following 12.8% growth last year. Thus, TMB could find scope for upside for the full year’s earnings forecast if it is able to deliver better loan growth than our number of 7.5% and bigger NIM than the 3.0% that we targeted. Besides, we adjudge that its FY16 fee income is set at the excessively ambitious growth of 25-30% against our number of a mere 11%. The bigger growth in fee income than modeled could bring an upside to our FY16 earnings forecast as well.

… and risk on asset quality is limited via NPL sales and fast TDRs

Although management expects its NPL to rise because of the deteriorated economy during 1H16, it aims to curb its NPL ratio so that it sticks close to 3.0% at YE16 (near last year’s level of 2.99%). This implies that the bank might set aside high loan-loss provisioning (LLP) of Bt5bn, close to last year’s and work toward fast troubled debt restructuring (TDR) and big NPL sales in FY16. This could allow its loan-loss-coverage ratio to remain in the range of 140-145% in FY16 from 142% at YE15. We view that TMB could maintain its NPL ratio of about 3% from its NPL sales and bad debt write-offs. Note that about 30% of NPL amounts (mostly in the SME sector) are covered by the Thai Credit Guarantee Corporation (TGC) to their full amounts. Hence, we do not expect much loss if the bank sells its NPL quantities. Note that its YE15 NPL ratio was 2.99%.