Q4 2012A: Big surprise on B/S clean upTMB Bank Plc
1. Loan growth: In line with expectations, +3.9% QoQ vs. +3.4% QoQ for 3Q12.
2012 loan growth was 14%.
2. Net interest margin: Better than estimated, +10 bps QoQ to 2.87%. Yield on
earning assets surprisingly rose 9 bps QoQ, despite interest rate cuts.
Meanwhile, cost of funds slipped 3 bps QoQ.
3. Non-interest income: Exceeded expectations, +46% QoQ, mainly driven by
fee income and extra items, i.e. gain on sale of assets. Outdoing our
estimates, net fee income grew 28% QoQ for 4Q12 and 25percent for 2012.
4. Cost to income: Cost to income ratio fell to 54.1percent from 57.5percent for 3Q12,
more than we had anticipated.
5. Asset quality: TMB took us by surprise with provisions of Bt5.4bn (+350%
QoQ) - far larger than we had anticipated after seeing it reserve an average
of Bt1.1bn per quarter for 9M12, indicating a big balance sheet clean up.
For the year 2012, Bt5.3bn in extra provisions were added to the Bt3.5bn in
normal provisions. TMB sold Bt5.7bn in NPLs, thereby reducing NPLs 22%
QoQ and bringing NPL ratio down to 4.88percent from 6.47% at 3Q12. LLR
coverage rose to 113percent from 83% at 2Q12. We view this as a positive move.
Maintain Sell. We maintain SELL on TMB, although we raise target price (TP) to
Bt1.9 (1.4x 2013F BVPS) from Bt1.6/share (1.2x 2013F BVPS), after raising our
forecasts for 2013-2015 to adjust for the change in provision needs after the
surprise big balance sheet cleanup in 4Q12. Forecasts are brought up 27percent for 2013,
18percent for 2014 and 13percent for 2015. Note that our target price partly reflects the M&A
target valuation as TMB is an M&A.