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TMB Bank

4Q13 profit shrinks slightly, but 2013 ROE near 10% as targeted

TMB Bank Plc (TMB)

- 4Q13 profit drops qoq. Loan meets target, NIM increases, pushing ROE near 10%

TMB announced 4Q13 net profit at B1.79bn, 3% lower than our projection,

decreasing 3.8%qoq (but rebounding aggressively from a net loss of B1.64bn in

4Q12) due to following factors. 1) Debt provision increased 45.8%qoq

(decreasing 67.6%yoy though) - worse than expected. Credit cost in 4Q13

shifted to 140bp from 101bp in 3Q13. The bank clarified that the increase in debt

provision occurred because it had brought interest income and fee income from debt

restructuring in this quarter to make additional provision to strengthen the balance

sheet, not because of NPL, reflecting from NPL at end-2013 of 3.58% which

increased only slightly from 3.50% of total loans at end-3Q13. Overall, NPL coverage

ratio (LLR/NPL) at end-2013 rose to 147.2percent from 145.6% at end-3Q13. 2)

Operating expense increase 20.1%qoq and 8.4%yoy - worse than

projected, mainly personnel bonus and marketing expense to promote selling of its

financial products. On the contrary, there were still positive in this quarter factors

even though they could not negate effects from the aforementioned negative factors.

1) Net interest income in 4Q13 increased 15.7%qoq and 28.9%yoy -

substantially higher than expected, because the bank still booked interest

income from debt restructuring (one-time recognition). Overall net loan growth

during the quarter was greatly higher our projection at 5.1%qoq and also consistent

with our FY2013 net loan growth of10%yoy, mostly from small and medium SME

loans. Consequently, 4Q13 loan yield increased 39bp to 5.61%, while funding cost

increased only slightly. Accordingly, NIM in 4Q13 rose to 3.47%, the highest by

quarter in several years. Excluding the interest income from the debt restructuring,

NIM still increased by 6bp qoq to 3.10%. 2) Fee income in 4Q13 increased

8.7%qoq (weakening slightly yoy) - better than expected, mostly from an

increase in fee income from non-loan related transactions such as bancassurance

and loan transaction. Overall, FY2013 net profit enlarged to B5.74bn, skyrocketing

354.9%yoy, making the year's high in eight years.

- Maintain forecast. Earnings to prosper in 2014

We maintain our earnings forecast for FY2014-2015 and hold a positive outlook

toward TMB's business as the bank could increase high-yield loans to negate lowyield

corporate loans and also restructure deposit by increase proportions of CASA

and no-fixed & ME to 62% of total deposits. As a result, NIM got closer to the

sector's average, and tends to stay high near 3% in 2014-2015, under net loan

growth forecast of 8% p.a. on average.

- Upgrade to HOLD. Share price falls substantially below fair value

We upgrade our recommendation from SELL to HOLD. The current share price has

substantially undergone correction until getting lower than FY2014 fair value of

B2.62, based on 1.70x PBV (GGM, under long-term ROE forecast of 13.70%).

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