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TMB Bank

Not good quarter for TMB Hold

TMB Bank Plc (TMB)

- 1Q14 profit drops as expected. NIM falls despite lower provision

TMB’s 1Q14 net profit was reported at B1.60bn, falling

10.9%qoq and 11.8%yoy (6% under our forecast). Net interest

income slipped 16.1%qoq (as expected). NIM dropped to 2.82%

(below 3percent for the first time in three quarters) because loan

barely grew. Yield decreased significantly as new loan growth

and market interest rate declined. TMB has reduced high-yield

SME loan issuance (conservative policy). One-time interest

income from debt restructuring (booked in 4Q13) was not

booked in 1Q14. Deposit was still high in 1Q14, so TBM’s

funding cost did not decrease significantly. As loan declined,

loan-related fee income (over 20% of TMB’s fee income) also

dropped, thus harshly lowering TMB’s fee income. Debt provision

decreased more than expected compared to exceedingly high

provision in 2013; credit cost dropped to 93bp (in line with

TMB’s FY2014 target at 90-100bp) from 152bp in 2013. 1Q14

operating cost dropped significantly after high season passed.

However, 1Q14 cost to income ratio exceeded 50% (TMB aims

to keep it below 50%). Overall, TMB’s 1Q14 net profit made up

21% of FY2014 total net profit forecast.

- 2Q14 profit sluggish like 1Q14

We maintain our FY2014-2014 earnings forecast, projecting

TMB’s FY2014 net profit to leap by 34.5%yoy, more

conservative than the bank’s target. However, 2Q14 earnings

result is not likely to improve significantly from 1Q14. The

prolonged political turmoil has been pressing the economy and

investor’s confidence. TMB has extended its conservative policies

and delayed its expansion plan, thus pressing its yield. Also, as

TMB focuses on deposit, there would be continuous effect on

cost of deposit and NIM.

- Sell to take profit for short term

We reiterate to hold but recommend selling to take profit for a

short term. FY2014 fair value (GGM, 1.70x PBV, 13.70% longterm

ROE) is B2.62, implying only 5% upside. Dividend yield is

also unattractive.

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