TMBThanachart Bank PCL: Well-prepared for uncertainties
- Results in line with expectations, as lower-than-expected topline and higher-than-expected ECL were offset by utilisation of tax benefits
- Pre-funding and liquidity recycling strategies helped cushion NIM
- Credit cost to remain within guidance with some flexibility from the utilisation of tax benefits
- Maintain BUY with TP of Bt2.02
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The y-o-y increase was attributed to higher net interest income (NII) (from NIM expansion) and lower effective tax rate (due to utilisation of tax benefit), while the q-o-q increase was thanks to lower cost-to-income (C/I) ratio and lower ECL.
Its pre-provision operating profit (PPOP) increased 5.1% y-o-y and 0.6% q-o-q. The y-o-y increase was attributed to higher NII, while the q-o-q increase was thanks to lower C/I ratio.
3M24 earnings accounted for 28% of our full-year estimate.
Loan portfolio contracted 3.5% y-o-y and 0.9% q-o-q. Such loan contraction was in line with the bank’s strategy to selectively grow a quality portfolio with justified risk-adjusted returns while leveraging its core strength and expertise.
Segment-wise, retail loans (62% of total loans) decreased 1.3% q-o-q, due to the decline in hire purchase (-1.6% q-o-q), mortgage loans (-1.0% q-o-q), and credit card loans, while top-up loans, namely Cash Your Car (CYC) (+3.5% q-o-q) and Cash Your Home (CYH) (+2.9% q-o-q), expanded on track. In terms of consumer lending, personal loans expanded 3.9% q-o-q, while credit card loans declined 4.9% q-o-q due to the seasonal effect.
Corporate loans (30% of total loans) increased 0.2% q-o-q, thanks to the demand in working capital, while trade finance and term loans slowed down.
This was in line with the bank’s strategy to recycle its liquidity from a low-yield portfolio to selectively grow secured higher-yield loans.
SME loans (8% of total loans) declined 3.0% q-o-q, reflecting the bank’s strategy to de-risk the SME portfolio.
Manageable asset quality. Overall asset quality of the bank remained under control, thanks to the banks’ quality growth strategy, conservative loan staging, and continuing balance sheet cleanup.
NPLs declined to Bt39.8bn at end-1Q24, vs. Bt41.0bn at end-4Q23. In 1Q24, TTB wrote off Bt6.8bn NPLs (vs. Bt3.7bn in 4Q23) and sold Bt0.4bn NPLs (vs. Bt0.8bn in 4Q23).
NPL ratio declined to 2.56% at end-1Q24, vs. 2.62% at end-4Q23.
In 1Q24, TTB set aside an extra provision of Bt602m against future downside risks, taking the total ECL to Bt5.1bn. With that, its coverage ratio remained relatively stable q-o-q at 155% at end-1Q24.
Capital position remained strong. At end-1Q24, its Tier 1 capital stood at 17.00%, while CAR was 20.80%, compared with the BOT’s minimum requirements of 9.50% and 12.00%, respectively.
Key highlights for 1Q24 results:
i) Pre-funding and liquidity recycling strategies helped cushion NIM. NII increased 6.6% y-o-y but declined 3.7% q-o-q in 1Q24. The y-o-y increase was attributed to NIM expansion (as yields expanded more than cost of funds). Meanwhile, the q-o-q decline was due to higher cost of deposits (from the effect of liquidity preparation in 4Q23, resulting in a 4% q-o-q increase in deposits in 4Q23), while yields also increased but at a smaller magnitude.
At this point, management believes there is less urgency to raise deposits and expects a slower pace of deposit acquisition, thus lower funding cost pressure going forward.
Nonetheless, a potential yield enhance from increasing mix of high-yield loans may not offset deposit repricing, and as such, NIM is likely to gradually edge down q-o-q over the course of FY24F.
ii) C/I ratio to remain within guidance of mid-40s. Management expects C/I ratio to remain in the mid-40s in FY24F. With the stringent cost discipline and topline recovery, its C/I ratio was well-managed within the range of 43%-44%, reflecting the bank’s efficient cost management amid its ongoing investment in digital/IT to drive the bank’s digital capability to eventually become a digital-fist/digital-only bank.
iii) Credit cost to remain within guidance with some flexibility from the utilisation of tax benefit. TTB has been very prudent in managing its balance sheet quality. On top of NPL write-offs and sales, TTB has continuously downgraded weak loans (i.e., a conservative loan staging approach), while providing sufficient credit costs for such loans to mitigate downside risks amid economic uncertainties and the prolonged economic recovery.
Thanks to its tax benefit from TBANK’s liquidation, we believe TTB has some flexibility to manage its credit cost, as seen in 4Q23 and 1Q24.
iv) Tax benefit to continue to help cushion bottom line over the next few years. Recall that Thanachart Bank (TBANK)’s liquidation process was completed in Nov 2023 and resulted in an accounting loss from investment, which can be utilised as a tax shield for TTB within five accounting periods.
In 1Q24, a tax benefit of Bt1.4bn was utilised, resulting in a tax credit of Bt351m in the quarter. With that, at end-1Q24, the remaining tax benefit was Bt14.1bn, which can be utilised until 2028. Note that the recognition of tax benefit will not necessary be on a straight-line basis.
Attractive dividend yield. TTB’s ROE has continued to expand thanks to its ongoing earnings growth and capital management. With its high Tier 1 capital (i.e., 17.0% at end-1Q24) and prudent business expansion amid an uncertain economic outlook, it is likely that TTB will keep its dividend payout at a high level to manage its capital position and enhance ROE.
We expect TTB to pay a Bt0.11 DPS for its FY24F performance, implying a dividend payout of 57% and a dividend yield of 6.2% at the current share price.
Maintain BUY with TP of Bt2.02. Our TP is based on 0.85x FY24F P/BV, i.e., 1SD above its 5-year average P/BV. Given its proven synergies from the merger, consistently improving operating earnings, and flexibility to manage its bottom line from the tax benefit, we believe TTB has room to further re-rate. With a total return of 19.7% (i.e., 13.5% upside and 6.2% dividend yield), we reiterate our BUY call on TTB.
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| FY Dec | 1Q2023 | 4Q2023 | 1Q2024 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Net Interest Income | 13,502 | 14,948 | 14,396 | 6.6 | (3.7) |
| Non-Interest Income | 3,292 | 3,308 | 3,204 | (2.7) | (3.1) |
| Operating Income | 16,794 | 18,256 | 17,600 | 4.8 | (3.6) |
| Operating Expenses | (7,303) | (8,336) | (7,570) | 3.7 | (9.2) |
| Pre-Provision Profit | 9,491 | 9,920 | 10,030 | 5.7 | 1.1 |
| Provisions | (4,276) | (9,326) | (5,117) | 19.7 | (45.1) |
| Associates | 75.4 | 76.1 | 69.5 | (7.9) | (8.7) |
| Exceptionals | 0.00 | 0.00 | 0.00 | - | |
| Pretax Profit | 5,291 | 670 | 4,982 | (5.8) | 643.8 |
| Taxation | (996) | 4,197 | 351 | (135.3) | (91.6) |
| Minority Interests | 0.00 | (0.01) | (0.01) | (100.0) | (20.0) |
| Net Profit | 4,295 | 4,866 | 5,334 | 24.2 | 9.6 |
| Growth(%) | |||||
| Net Interest Income Gth | (2.3) | 1.9 | (3.7) | ||
| Net Profit Gth | 11.6 | 2.8 | 9.6 |
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