TMB Bank

Up 2013's FV to B2.40. Free from worry after NPL decreases. ROE hikes to 14%

TMB Bank Plc (TMB)

Positive view held despite 4Q12's massive loss. High provision boosts coverage ratio

TMB posted 4Q12's earnings with a net loss of B2.12bn, reversing from a

great profit in 3Q12 and against our projection for a profit of more than

B1.64bn. The loss stemmed from the bank's decision to increase debt

provision specially by B5.38bn in this quarter, higher than our estimation of

B1.2bn and not because of NPL problem as worried. Furthermore, TMB

could also decrease NPL significantly in this quarter by B5.95bn to only

3.75% of total loans at end-2012 from B5.06% at end-3Q12. Overall,

coverage ratio (LLR/NPL) at end-2012 stood equivalent to the sector's

average at 118.2percent from 85.4% at end-3Q12. The motivation for the high

debt provision is the continuously improving earnings in 2012, especially

4Q12 which showed the profit growth of 8.1%qoq (but the flat growth yoy)

due to following contributions. 1) NIM increased 12bp to 2.87% - better

than expected. Yield has also risen due to a benefit from the net loan

growth of 3.9%qoq and 13.9%yoy from high yield loans including small

SMEs and retails. The bank could increase the portion of these loans to 51%

of the portfolio. On the other hand, funding cost has decreased as a result

of TMB's increase of a portion of low cost deposit, CASA and no-fixed

deposit, to 65% of the portfolio at end-2012. 2) Fee income grew

20.8%qoq and 53.8%yoy - substantially higher than projected, in line with

the high season, especially fee income from SME and retail loans. 3) Cost to

income ratio decreased continuously to 54.5percent from 57.5% in 3Q12 as a

result of a strict cost control despite a high season.

Up 2013-2014's forecast…raise NIM, cut cost to income ratio

We revise up 2013-2014's net profit respectively by 27.5% and 41percent from

our previous forecast in order to reflect TMB's development, particularly an

assumption for net loan growth and NIM which we had previously

underestimated. At the same time, we also reduce the debt provision after

NLPL has decreased substantially, as detailed in the table. These positive

factors, accordingly, help offset an effect from the bank's returning to pay

income tax in 2013 at a normal rate of 20% after the privilege on tax loss

carry forward ran out. Accordingly, net profit growth in 2013-2014 is

anticipated high at 288.9% and 32.4% respectively.

Upgrade to BUY. Invest when price weakens

We upgrade our recommendation from Hold to BUY. New 2013's fair value,

using 1.80x PBV (GGM, with long-term ROE forecast of 14%), is B2.40.

Although the share price might weaken in the short term from profit-taking

after 2012's earnings were announced greatly lower than expected, this will

benefit the balance sheet in the long run. Time to accumulate.