TMB Bank Solid start but stronger quarter still ahead
■ 1Q21 net profit at THB2.8bn, -33% yoy but up 125% qoq, was led by declining provision expense, while topline generation remains soft.
■ Net profit growth is likely to slow in 2Q21F from higher provisions, while we expect synergy from completed integration to remain a key catalyst in 2H21F. 1Q21 ahead from lower-than-expected provision expense TMB reported 1Q21 net profit at THB2.8bn, -33% yoy but +125% qoq. The results were 7% ahead of our estimate, led by lower-than-expected credit cost of 158bp vs. our estimate of 190bp. We expect the strong quarter to act as a near-term re-rating catalyst for TMB.
With its integration process expected to be completed in 2Q21F, we foresee further benefits from cost savings in 2H21F. Soft start for its topline growth amidst macro-headwinds TMB Bank continued to report a contraction in its loan portfolio by 1.1% qoq, as the bank continued to focus on de-risking its portfolio with selective loan growth against the current macro-headwinds. NIM contracted 6bp qoq from a less favourable portfolio mix, previous rate cuts and competition in the mortgage segment.
Non-NII did not see as strong of a recovery as peers, as it was largely dragged by a seasonal slowdown in auto insurance sales, while mutual fund fees remained strong. Opex decline was also within expectations as TMB recognised a one-time early retirement programme in 1Q21. As such, we expect CIR to trend down in upcoming quarters to 44% in FY21.
We expect improving NII to be a key driver of PPOP growth in FY21F, along with tighter cost control, as TMB continues to run down its low yield portfolio and shift to greater retail lending. Brace for higher provisions in the coming quarters Around 14% of its total loan portfolio remained under the bank’s relief programme as of Mar 21, unchanged from Dec 20. These customers were mainly borrowers who qualified for the second phase of relief measures. While credit cost was lower than expected in 1Q21, TMB did not provide further clarification on provisioning in the quarter.
In our view, provisions in 1Q21 have yet to include additional provisions against the new wave of Covid-19 in Thailand which began in late-Mar/early-Apr. As such, we expect TMB’s credit cost to trend up in 2Q21F, and we keep our current credit cost assumption of 188bp intact given the current economic outlook. NPL ratio increased further in 1Q21 to 2.75% from 2.5% in 4Q20. The rise in NPL was partly due to the slow natural resolution of NPLs during the quarter.
We expect the deteriorating trend to continue throughout FY21F, with NPL ratio likely reaching a peak at 3% by end-FY21F. Further benefits from merger to be highlighted in 2H21F We reiterate our Add call with an unchanged target price of THB1.33, based on 0.6x FY21F P/BV.
We expect TMB to report one of the strongest PPOP growth in FY21-22F as it continues to leverage synergies arising from the merger and completion of integration by 3Q21F. Strong PPOP growth remains a key catalyst. Downside risk is higher-than-expected NPL formation as customers exit its relief programme.
Valuation and recommendation Further benefits from merger to be highlighted in 2H21F We expect TMB to report one of the strongest PPOP growth in FY21-22F as it continues to leverage synergies arising from the merger and completion of integration by 3Q21F.
We reiterate our Add call with an unchanged target price of THB1.33, based on 0.6x FY21F P/BV. Strong PPOP growth remains a key catalyst. Downside risk is higher-thanexpected NPL formation as customers exit its relief programme.
– By CIMB Bank Research
