TMB Bank

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 3% 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.