Thai Military Bank

Thai Military Bank Plc (TMB)

 

- 1Q15 profit weaker than expected due to higher debt provision, tax expense  

 

TMB posted 1Q15 net profit at B1.63bn, contracting 45.0%qoq and 2.2%yoy (33% below our projection) and making up 16% of our FY2015 earnings forecast. Tax expense increased because of a reversal of income tax of B362m recognized in 4Q14 (from a reversal of the bank’s tax expense for NPL impairment provisioning booked in previous quarters; provision for NPL impairment is not counted as a tax expense, so it has to be included back in the profit before tax for income tax calculation, but when the NPLs are sold or restructured, the bank can bring the provisioning expense to reduce tax). TMB also made higher debt provision than expected in order to deal with increasing NPL and possibly fluctuating economy in the future. However, the core business rebounded from 4Q14 and 1Q14 because operating expense decreased after high season ended (better than expected), fully compensating for lower income from the core business and boosting normalized profit. 

 

- Maintain forecast. Credit cost passes peak already 

 

We maintain TMB's earnings forecast; the bank's net profit is estimated to grow 4.3%yoy in 2015 (thanks to lower extraordinary expense) and leap 18.3%yoy in 2016. The banks would focus more on high-yield loans, rising net loan growth, NIM, and fee income, and asset quality has improved remarkably. 2Q15 earnings is anticipated to rebound significantly from 1Q15 as credit cost would drop and extremely strict NPL provision would decrease disposal of NPL via sales or transfers (to meet the target), which means the bank would recognize income from a reversal of NPL provision expense like in 2014. 

 

- Share price drops too severely. Rare good entry point 

We reiterate BUY. Because the share price plunged severely after 1Q15 earnings report, FY2015 fair value (GGM, 2.08x PBV, 13.70% ROE, 9% LT growth)

implies 23% upside (dividend included). Don't miss this rare good entry point.