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Thai Military Bank

Profit improves, growth expected in 2H14 Rec. : BUY TMB's core business remained strong in 2Q14, foreshadowing a good outlook in 2H14, especially from reviving SME loans. BUY

Thai Military Bank Plc (TMB)

- 2Q14 profit beats projection, thanks to write back of provision excess

TMB's 2Q14 earnings were substantially better than expected. The net profit

was B2.58bn, leaping as much as 60.8%qoq and 922.2%yoy because of

lower provision from selling of B2.4bn of NPLs. Due to a very strict debt

provision policy the bank has implemented, the NPL selling allowed a write

back of excess provision. After the selling, a ratio of NPL to total loans

decreased from 3.59% at end-1Q14 to 3.15% (separate financial

statement). Normalized profit remains strong as projected. Both net interest

and non-interest income improved. Fee income grew 18.5%qoq, mainly

from increasing fee income from sales of mutual funds, insurance contracts,

and loan transactions, while other non-interest income also rose from

B131m of gain on sales of investment/assets in this quarter. Operating

expense dropped slightly from the prior quarter due to lower personnel

expense. Since the income grew at a more rapid pace than the cost, cost to

income ratio decreased to 51.35%.

- To revise up forecast

We will revise up FY2014 earnings forecast after the analyst meeting on July

16 because 1H14 earnings already made up as much as 54% of the full year

forecast. A major change would be a cut of debt provision or credit cost for

FY2014 which was previously projected at 110bp, versus an actual figure of

only 58bp in 1H14. As a result, FY2014 net profit would grow significantly

with stronger asset quality than 2013's.

- Current price cheaper than 10-year average

We recommend buying TMB. 2014 fair value (GGM) is B2.88, based on

1.87x PBV, ROE forecast of 13.70%, and LT growth of 9%. The current

share price still provides total return of 14% and is cheaper than a 10-year

average price, thus reducing a risk of short-term profit-taking after the

earnings declaration.




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