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TMB Bank

TMB keeps ROE target at 14%. To boost fee income by 30% in 2014 HOLD

TMB Bank Plc (TMB)

- ROE target not out of reach if NIM stays flat and debt provision decreases.

Despite the slowing economy, TMB has an ambitious goal with FY2014 ROE target of

14%. During the two previous quarters, ROE has increased and made the average of

12%, so it would not be difficult for ROE to reach 14%. FY2014 debt provision is

expected to decrease from credit cost of 150bp in 2012-2013 to 100bp (still higher

than our forecast at 110bp). FY2014 NIM is projected close to 2013 at 3.0-3.1%

(higher than our projection at 2.94%). FY2014 net loan growth is expected at 8-

10%yoy, close to 2013 and our forecast of 8%yoy. TMB expects that, during the

political turmoil, corporate, SME and retail loan would grow at the similar rate of

10%yoy. Moreover, TMB expects FY2014 fee income growth to improve from

19%yoy to 30%yoy (higher than our FY2014 projection at 15%yoy) in order to

cover its weak point when compared with other big banks that have a high ratio of

fee income to earnings assets of almost 2% (versus 1.17% of TMB). TMB would

boost cross sales for bancassurance and fund selling in 2014, as well as fee income

from trade finance, cash management and Fx. Moreover, TMB aims to have a good

control on operating cost. Cost to income ratio is projected to drop from 50% in

2013 to 49% in 2014, lower than our projection at 49.5%. FY2014 income is

expected to grow twice faster than expense. TMB plans to lay of 500 employees in

2014 and hire new employees, attempting to reduce expense as well as improve

efficiency. The strategy is projected to raise TMB’s ROE to 14%.

- Maintain forecast. We project ROE at 12%

We maintain TMB’s FY2014-2016 earnings forecast. FY2014 net profit is projected to

leap by 34.5%yoy, even under more conservative assumption than the bank's. We

still have a positive outlook on TMB’s recent improvement: TMB’s high-yield loan has

increased to compensate for low-yield corporate loan, and low-cost CASA deposit

and no fixed and ME deposit have made up 62% of total deposit. Thus, NIM is likely

to grow closer to the sector’s average.

- "HOLD". "BUY" when risk is lower

We reiterate to hold TMB. Current price has substantially undergone correction,

diving below FY2014 fair value of B2.62 (GGM, 1.70x PBV, 13.70% long-term ROE).

However, we might upgrade our recommendation to BUY if the risk from the political

turmoil is lower, as the price has over 20% upside.

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