TMB Bank
TMB Bank Company Update
Buy (16TP Bt2.60) Close Bt2.28
Banking
Earnings upgrade/Earnings downgrade/Overview unchanged
June 6, 2016
Lowering the targets in line with other banks Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.217
0.263
KT ZMICO vs. consensus Share data
‐7.8%
‐12.5%
Reuters / Bloomberg
TMB.BK/TMB TB
Paid‐up Shares (m)
43,807.37
Par (Bt)
0.95
Market cap (Bt bn / US$ m) Foreign limit / actual (%) 52 week High / Low (Bt) Avg. daily T/O (shares 000) NVDR (%)
100.00/2,805.00 50.36/32.95 2.76/2.16 127,116.00 9.44
Estimated free float (%)
43.92
Beta
1.20
URL
CGR
Anti‐corruption
Level 4 (Certified)
Cheap valuations and solid balance sheet are main appeals We maintain our Buy rating for TMB despite our downward earnings revision, given its current cheap valuations and its balance sheet remaining stronger vs. peers, as well as its outpacing profitability improvement as compared to other banks. Lowering 2016 financial targets TMB recently lowered its financial targets for 2016, which were posted on the bank’s website, mainly to reflect the slow economic growth. The main revisions are 1) raising the provision guidance to 120 bps of average loans (from around 100 bps) following its prudent risk management, with the bank still aiming to keep its reserve to NPL ratio at around 140%; 2) lower NIM (to around 3% from 3.0‐3.3%); and 3) lower deposit growth to 6‐8% (from 8‐10%); see figure 1. However, the bank keeps its aggressive net fee income growth target (25‐35% vs. +9% YoY in 1Q16) unchanged, but we see this as being difficult to achieve amidst the fragile macro front. Note that this new guidance will be announced formally in the analyst meeting (around late July) set after the 2Q16 results. Revise down net profit estimates for 16‐17E by 14‐15% We cut our net profit (NP) forecasts for TMB in 2016‐17E by 14‐15%, mainly to reflect the bank’s latest 2016 guidance and the slow economic recovery, which could especially lead to a prolonged weak asset quality outlook. Our main earnings revisions came from lower net fee income growth, a higher provision and lower NIM; see figure 2. Following our NP cut, we lowered our 16E target price to Bt2.60 (for an implied target P/BV of 1.3x) from Bt3.0 previously. The upcoming change of new CEO should not impact bank’s operation TMB expects to announce the new CEO soon as the current CEO, Mr. Boontuck Wungcharoen, already expressed his intention to retire from his post in December this year. As per news sources, Mr. Yol Phokasub, who just resigned as president of Siam Commercial Bank, is anticipated to be the next CEO for TMB. TMB says that the new CEO will work in parallel with the current CEO to ensure a smooth transition. We do not expect the CEO change to have a significant impact on the bank’s operation as Mr. Boontuck has built a strong and successful platform for TMB, especially in regard to the SME base, deposit franchise, risk management system and outpacing ROE improvement vs. peers. Financials and Valuation FY Ended 31 Dec PPOP (Btm) Net profit (Btmn) EPS (Bt)
Prapharas Nonthapiboon Analyst, no 17836 [email protected] 66 (0) 2695‐5872
2014
2015
2016E
2017E
2018E
12,846
14,665
16,179
17,532
19,443
9,539
9,333
8,830
10,267
12,254
0.22
0.21
0.20
0.23
0.28
EPS growth (%)
66%
‐2%
‐5%
16%
19%
BV (Bt)
1.60
1.75
1.93
2.11
2.32
0.060
0.060
0.061
0.070
0.084 2018E
Dividend (Bt) FY Ended 31 Dec
2014
2015
2016E
2017E
PER (x)
10.44
10.69
11.30
9.72
8.14
PBV (x)
1.43
1.30
1.18
1.08
0.98
2.63 14.5%
2.63 12.8%
2.66 11.0%
3.09 11.6%
3.69 12.7%
Dividend yield (%) ROE (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
Figure 1: TMB’s financial targets for 2016 vs. our forecasts Performance Targets Loa n growth Depos i t growth Net Interes t Ma rgi n (NIM) Net fee i ncome growth
2015
2015
2016
2016
TMB's Targets 6‐8%* NA ~3% 30%
Actual
KTZ's forecasts
9.5% 12.8% 3.00% 36.4%
TMB's Targets 8‐10%* 6‐8% (from 8‐10%) ~3% (from 3.0‐3.3%) 25‐30%
140%
8.0% 7.0% 2.96% 9.5%
3.14% 139%
142% ~140% (from 140‐145%)
Source: KT ZMICO Research * Performing loan growth
Figure 2: Key changes in our earnings revision 2016E
Key assumption changes Net profit (Btmn) % Change in net profit from previous forecast % Change in net profit YoY Loan growth (%) Net interest margin (NIM) Fee income growth (%) Provision for loan loss (Btmn) Provision for loan loss (% to loans) Provision for loan loss (% to average loans) Cost to income ratio (%)
New 8,830 ‐14% ‐5% 8% 2.96% 9% 7,527 1.20% 1.25% 49.3%
2017E Previous 10,234
8% 3.04% 18% 6,900 1.10% 1.14% 47.8%
New 10,267 ‐15% 16% 8% 2.98% 14% 7,451 1.10% 1.14% 48.8%
Previous 12,050
9% 3.10% 13% 6,837 1.00% 0.95% 46.8%
Source: KT ZMICO Research
TMB backtracks on interest rate for normal savings as customers were unready for such a move
TMB BANK on last Friday (3) scrapped its zero interest rate for normal savings accounts (vs. 0.125% previously) after a public outcry on social media, as the customers were not ready for such a step. TMB is expected to migrate depositors from normal savings accounts to TMB All Free accounts, which waive all transaction fees and offer benefits that can more than offset the zero rate. Note also that TMB’s deposit structure (see Figure 3) is quite different from other banks as TMB’s pure CASA (excluding TMB All free accounts) was just ~18% of total deposits as of 1Q16 vs. ~55% for the sector average. Note also that TMB has been quite successful in initiating and differentiating its deposit products (especially No fixed and ME, as well as the latest product All Free accounts), which offer more flexibility and benefits for clients. This has been proven by the bank’s funding cost, which is in comparison either slightly higher or near other large banks, resulting in better NIM management. In case that TMB is able to migrate its deposit accounts to All Free accounts (both from normal savings accounts and No fixed), the bank could further reduce funding cost by >5 bps, which would benefit the bottom line by >3% of net profit. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
Figure 3: Deposit structure and interest rate % of total deposits Deposit structure Current deposits 7% Normal savings deposits 11% All free savings accounts 17% 65% Fixed deposits
Buy (16TP Bt2.60) Close Bt2.28
Banking
Earnings upgrade/Earnings downgrade/Overview unchanged
June 6, 2016
Lowering the targets in line with other banks Price Performance (%)
Source: SET Smart
FY16
FY17
Consensus EPS (Bt)
0.217
0.263
KT ZMICO vs. consensus Share data
‐7.8%
‐12.5%
Reuters / Bloomberg
TMB.BK/TMB TB
Paid‐up Shares (m)
43,807.37
Par (Bt)
0.95
Market cap (Bt bn / US$ m) Foreign limit / actual (%) 52 week High / Low (Bt) Avg. daily T/O (shares 000) NVDR (%)
100.00/2,805.00 50.36/32.95 2.76/2.16 127,116.00 9.44
Estimated free float (%)
43.92
Beta
1.20
URL
CGR
Anti‐corruption
Level 4 (Certified)
Cheap valuations and solid balance sheet are main appeals We maintain our Buy rating for TMB despite our downward earnings revision, given its current cheap valuations and its balance sheet remaining stronger vs. peers, as well as its outpacing profitability improvement as compared to other banks. Lowering 2016 financial targets TMB recently lowered its financial targets for 2016, which were posted on the bank’s website, mainly to reflect the slow economic growth. The main revisions are 1) raising the provision guidance to 120 bps of average loans (from around 100 bps) following its prudent risk management, with the bank still aiming to keep its reserve to NPL ratio at around 140%; 2) lower NIM (to around 3% from 3.0‐3.3%); and 3) lower deposit growth to 6‐8% (from 8‐10%); see figure 1. However, the bank keeps its aggressive net fee income growth target (25‐35% vs. +9% YoY in 1Q16) unchanged, but we see this as being difficult to achieve amidst the fragile macro front. Note that this new guidance will be announced formally in the analyst meeting (around late July) set after the 2Q16 results. Revise down net profit estimates for 16‐17E by 14‐15% We cut our net profit (NP) forecasts for TMB in 2016‐17E by 14‐15%, mainly to reflect the bank’s latest 2016 guidance and the slow economic recovery, which could especially lead to a prolonged weak asset quality outlook. Our main earnings revisions came from lower net fee income growth, a higher provision and lower NIM; see figure 2. Following our NP cut, we lowered our 16E target price to Bt2.60 (for an implied target P/BV of 1.3x) from Bt3.0 previously. The upcoming change of new CEO should not impact bank’s operation TMB expects to announce the new CEO soon as the current CEO, Mr. Boontuck Wungcharoen, already expressed his intention to retire from his post in December this year. As per news sources, Mr. Yol Phokasub, who just resigned as president of Siam Commercial Bank, is anticipated to be the next CEO for TMB. TMB says that the new CEO will work in parallel with the current CEO to ensure a smooth transition. We do not expect the CEO change to have a significant impact on the bank’s operation as Mr. Boontuck has built a strong and successful platform for TMB, especially in regard to the SME base, deposit franchise, risk management system and outpacing ROE improvement vs. peers. Financials and Valuation FY Ended 31 Dec PPOP (Btm) Net profit (Btmn) EPS (Bt)
Prapharas Nonthapiboon Analyst, no 17836 [email protected] 66 (0) 2695‐5872
2014
2015
2016E
2017E
2018E
12,846
14,665
16,179
17,532
19,443
9,539
9,333
8,830
10,267
12,254
0.22
0.21
0.20
0.23
0.28
EPS growth (%)
66%
‐2%
‐5%
16%
19%
BV (Bt)
1.60
1.75
1.93
2.11
2.32
0.060
0.060
0.061
0.070
0.084 2018E
Dividend (Bt) FY Ended 31 Dec
2014
2015
2016E
2017E
PER (x)
10.44
10.69
11.30
9.72
8.14
PBV (x)
1.43
1.30
1.18
1.08
0.98
2.63 14.5%
2.63 12.8%
2.66 11.0%
3.09 11.6%
3.69 12.7%
Dividend yield (%) ROE (%)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 6
Figure 1: TMB’s financial targets for 2016 vs. our forecasts Performance Targets Loa n growth Depos i t growth Net Interes t Ma rgi n (NIM) Net fee i ncome growth
2015
2015
2016
2016
TMB's Targets 6‐8%* NA ~3% 30%
Actual
KTZ's forecasts
9.5% 12.8% 3.00% 36.4%
TMB's Targets 8‐10%* 6‐8% (from 8‐10%) ~3% (from 3.0‐3.3%) 25‐30%
140%
8.0% 7.0% 2.96% 9.5%
3.14% 139%
142% ~140% (from 140‐145%)
Source: KT ZMICO Research * Performing loan growth
Figure 2: Key changes in our earnings revision 2016E
Key assumption changes Net profit (Btmn) % Change in net profit from previous forecast % Change in net profit YoY Loan growth (%) Net interest margin (NIM) Fee income growth (%) Provision for loan loss (Btmn) Provision for loan loss (% to loans) Provision for loan loss (% to average loans) Cost to income ratio (%)
New 8,830 ‐14% ‐5% 8% 2.96% 9% 7,527 1.20% 1.25% 49.3%
2017E Previous 10,234
8% 3.04% 18% 6,900 1.10% 1.14% 47.8%
New 10,267 ‐15% 16% 8% 2.98% 14% 7,451 1.10% 1.14% 48.8%
Previous 12,050
9% 3.10% 13% 6,837 1.00% 0.95% 46.8%
Source: KT ZMICO Research
TMB backtracks on interest rate for normal savings as customers were unready for such a move
TMB BANK on last Friday (3) scrapped its zero interest rate for normal savings accounts (vs. 0.125% previously) after a public outcry on social media, as the customers were not ready for such a step. TMB is expected to migrate depositors from normal savings accounts to TMB All Free accounts, which waive all transaction fees and offer benefits that can more than offset the zero rate. Note also that TMB’s deposit structure (see Figure 3) is quite different from other banks as TMB’s pure CASA (excluding TMB All free accounts) was just ~18% of total deposits as of 1Q16 vs. ~55% for the sector average. Note also that TMB has been quite successful in initiating and differentiating its deposit products (especially No fixed and ME, as well as the latest product All Free accounts), which offer more flexibility and benefits for clients. This has been proven by the bank’s funding cost, which is in comparison either slightly higher or near other large banks, resulting in better NIM management. In case that TMB is able to migrate its deposit accounts to All Free accounts (both from normal savings accounts and No fixed), the bank could further reduce funding cost by >5 bps, which would benefit the bottom line by >3% of net profit. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 6
Figure 3: Deposit structure and interest rate % of total deposits Deposit structure Current deposits 7% Normal savings deposits 11% All free savings accounts 17% 65% Fixed deposits
