TMB Bank

Earning forecast ugrades

TMB Bank Plc (TMB)

Investment thesis

Because of TMB's strong SME-fueled loan growth profile and good funding cost management, we have revised up our FY13 and FY14 NIM assumptions to 2.8% and 2.85%, respectively, from 2.64% and 2.67%. Our expanded expectations for NIM prompted us to raise our earnings projections by 7.7% to Bt7bn for FY13 and by 22.7% to Bt9.2bn for FY14. Thus, we have upgraded our YE13 target price to Bt2.50 from Bt2.00. Our TRADING BUY rating stands.

Target 12-15% loan growth in FY13, led by SME portfolio

Management guides for lending expansion of 12-15% this year and targets deposit growth of 10%. The bank has a dual focus on its SME and retail portfolios. Note that we maintain our loan growth projection at 10percent for the moment. The bank aims to boost the SME proportion of its aggregate loan portfolio to 40% within a couple of years from 33% currently. As such, it expects its corporate business to fall to 40percent from 48% at the moment.

NIM is set at 3% in FY13

TMB guides that high-yield lending growth will bring on some NIM expansion even as funding costs rise. Competition for deposit mobilization has moderated, especially competition from special financial institutions). The bank expects an FY13 NIM of about 3.0% (its FY12 NIM was 2.7%). We, thus, have revised up our FY13 and FY14 NIM projections to 2.80% and 2.85%, respectively, from 2.64% and 2.67%.

Further efficiency improvements in FY13

Given a fatter NIM and continuing loan growth, TMB expects its cost/income ratio to decline further to 54percent from 57% last year. We have trimmed our FY13 cost/income assumption to 56percent from 57%. Note that the bank expects fee income to rise 15% in tandem with loan growth.

FY13 loan loss provisioning will drop sharply

TMB set heavy LLP provisions in 4Q12 in order to build its loan loss coverage ratio from 83% at end-Sept 2012 to 113% at YE12 (near the sectoral mean of 115%). The bank also intends to reduce its NPLs/ loans ratio to 3.0% at YE13 from 4.1% at YE12. We, thus, expect it to set LLPs of Bt3.8bn for FY13, down 57% YoY. Note that TMB plans to re-categorize general provisions of Bt800m last year into specific provisions in order to cut its effective corporate tax rate to below 20%.

ROE target of 10-11percent for FY13

Management has ambitious ROE targets of 10-11percent for FY13 and 14%, for FY14. Because of our FY13 and FY14 NIM revisions, we arrived at new ROE assumptions of 11.6percent for this year and 13.7percent for next, up from 10.9% and 11.5%, respectively.