TMBThanachart Bank PCL: Weathering the storm
- 1Q25 net profit came in at THB5.1bn (-5.2% y/y; +2.1% q/q), in line with market expectations
- Effective asset-liability management to sustaining NIM; digitalization and branch optimisation help manage OPEX
- FY25F earnings cut by 7% to reflect lower loan growth, lower NIM, and lower credit cost assumptions
- Maintain BUY with a higher TP of THB2.22
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The y/y decrease was attributed to lower NII (from loan and net interest margin [NIM] contraction) and lower fee income, while the q/q increase was thanks mainly to lower expected credit cost (ECL).
Its pre-provision operating profit (PPOP) decreased 6.9% y/y but was flat q/q. The y/y decrease was attributed to lower NII and lower fee income, while the q/q performance was cushioned by lower operating expenses (OPEX).
3M25 earnings accounted for 24% of our revised full-year estimate.
The remaining tax shield was THB9.4bn at end-1Q25. 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 (2023-2028).
Note that the recognition of tax credit will not necessarily be on a straight-line basis but is subject to future net profit streams.
In 1Q25, THB1.1bn of the tax shield was utilised, resulting in a tax credit of THB220mn (i.e., an effective tax rate of -4.5%) in the quarter. With that, at end-1Q25, the remaining tax shield was THB9.4bn, which can be utilised until 2028.
Loan portfolio contracted 8.0% y/y and 2.5% q/q in 1Q25. The 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 (63% of total loans) decreased 1.7% YTD, due to seasonality and challenging environment for retail lending growth. Hire purchase (HP) declined 2.2% YTD due to continuous slowdown in domestic car sales market and stringent underwriting criteria, which resulted in slow growth in new-car HP (-3.3% YTD) and Cash Your Car (CYC) (-1.4% YTD). Meanwhile, used-car HP grew 0.3% YTD – thanks to “Roddonjai platform”, – and high-yield Cash Your Book (CYB) grew 11% YTD.
In the meantime, mortgage lending declined 0.5% YTD, with new home loans declining 0.9% YTD amid the slow housing market, while top-up loans, Cash Your Home (CYH), increased 1.8% YTD.
For consumer loans, credit card and personal loans seasonally 7.0% YTD and 0.7% YTD, respectively.
Corporate loans (29% of total loans) declined 3.8% YTD due to large corporate loan repayments and the bank’s strategy to recycle liquidity from a low-yield portfolio to selectively grow secured higher yield loans.
SME loans (8% of total loans) continued to decline 3.1% YTD, reflecting the bank’s strategy to continue de-risking from SME lending.
Asset quality remained manageable. Overall asset quality of the bank remained under control, thanks to its quality loan growth strategy and conservative and prudent risk management and loan staging policy. TTB has continued to proactively derisk and resolve weak loans to ensure its portfolio quality and limit future downside risks through NPL sales and write-offs.
In 1Q25, TTB wrote off THB4.1bn NPLs and sold THB1.1bn NPLs (vs. THB6.7bn and THB0.6bn, respectively, in 4Q24).
As a result, NPLs increased 1.4% q/q to THB39.5bn at end-1Q25 due to slower NPL resolution in line with the bank’s NPL management strategy. NPL ratio also ticked up to 2.75%, vs. 2.59% at end-4Q24, but remained well-below the bank’s guidance of 2.9%.
In this quarter, TTB set aside an extra provision of THB954mn as a management overlay to cushion against future downside risks, taking the total expected credit loss (ECL) to THB4.6bn in 1Q25.
Excluding that, its normal provision was THB3.6bn, decreasing 11% q/q, thanks to lower NPL formation and lower losses from car repossessions in normal business operations, as well as benefits from the “You fight, we help” programme.
With that, coverage ratio edged down to 150% at end-1Q25 (vs. 151% at end-4Q24).
Capital position remained strong. At end-1Q25, its Tier 1 capital stood at 18.2%, while capital adequacy ratio (CAR) was 20.5%, compared with the BOT’s minimum requirements of 9.50% and 12.00%, respectively.
Key highlights for 1Q25 results:
i) Effective asset-liability management to sustain NIM. Management believes NIM had reached its peak in 2024 and will gradually decline following the policy rate cut cycle. However, its high portion of fixed-rate loans, together with loan mix shift initiative towards retail high-yield products, helped alleviate negative impact on its loan yield against sooner-than-expected rate cuts.
Meanwhile, funding costs were well-contained from lower deposit volume as a part of the bank’s asset-liability management (ALM) strategy to strike balance with loan growth, together with debt and borrowing management.
NIM declined 9.5bps y/y and 11.8bps q/q to 3.27% in 1Q25. The y/y decrease was due largely to relatively higher rate environment in 1Q24, resulting in higher loan yield, while funding cost was well-contained. Nonetheless, investment yield has improved from proactive investment management to enhance yields amid changing interest rate trend.
Meanwhile, the q/q decline was due to lower loan yield, reflecting (i) TTB’s conservative growth strategy, (ii) two policy rate cuts in Oct 2024 and Feb 2025, and (iii) impact from “You Fight, We Help” program of which the adoption rate was approx. 28% (as of Mar 2025) of eligible loan outstanding (about 6% of TTB’s total loans).
ii) Total fee income was somewhat cushioned by trade finance and FX fees. Fee income declined y/y and q/q. Loan-related fee growth was slow in line with muted loan growth, while the non-loan related fee growth continued its positive momentum backed by trade finance and FX fees, which were potentially derived from front-loaded exports ahead of Trump’s tariff to be in effect in 2H25F (and as such, we should expect slower trade finance fees in 2H25F).
Nonetheless, non-NII increased y/y and q/q, thanks mainly to an increase in gain on financial instrument measured at fair value through profit or loss (FVTPL) and other income from “You Fight, We Help” program, offsetting the decrease in fee income.
iii) Digitalization and branch optimization to help manage OPEX and C/I ratio. Cost discipline and efficiency improvement in business operation helped maintain cost-to-income (C/I) ratio level. Moreover, the digital-first business model will be one of the key drivers pushing C/I ratio towards the low 40s level within 2026.
In turn, such on-going transformation to the digital-first operation could help the bank optimise branches and employees to manage cost to serve down further as well as enhance revenue streams in the medium to long term.
OPEX declined 5.6% y/y and 7.0% q/q in 1Q25, thanks mainly to lower premises and equipment expenses, employee expenses and selling and marketing expenses. The continuous premise and employee cost reduction was attributed to on-track business transformation towards digital-first model together with branch optimisation and HR management.
C/I ratio remained relatively stable y/y but declined q/q to 43% in 1Q25.
Capital management to enhance ROE. TTB targets to achieve an ROE of 10% by 2026. Given its currently strong capital position (and high capital generation capacity) and expected limited loan expansion, capital management (including dividend payment, share buyback, and M&As) will help the bank reach its ROE goal faster rather than depending only on boosting its earnings growth.
Treasury stock update: Recall that TTB announced a 3-year (2025-2027) THB21bn share repurchase programme for the purpose of financial management (i.e., to structurally improve EPS and ROE).
The bank aims to conduct its first repurchase in 2025 with a total budget not exceeding THB7bn and the number of shares to be repurchased not exceeding 3.5mn shares (equivalent to 3.6% of the bank’s total paid-up shares).
The repurchase will be conducted through the automated trading system of the Stock Exchange of Thailand during the period of 3 Feb 2025 – 1 Aug 2025.
The cumulative number of shares repurchased as of 1Q25 was 308mn shares, and the total value of shares repurchased as of 1Q25 was THB0.6bn (approx. 9% of total size).
With the share repurchase programme implemented, we expect TTB to maintain its dividend payment at THB0.13 per share for FY25F-FY27F. (Note that we previously anticipated the bank to raise its dividend payments for those respective years.)
FY25F earnings revision. As we incorporated TTB’s 1Q25 results and revisited our key assumptions after discussion with management, we cut FY25F earnings by 7%.
Specifically, we (i) cut FY25F loan growth to -1.6% (from +2.0% previously) to reflect higher challenges in growing loans given good customer deleveraging and declining new car prices (i.e., smaller new auto HP loan sizes), (ii) slashed NIM to 3.23% (from 3.36%) to reflect potentially another rate cut in 2Q25F, and (iii) lowered credit cost to 145bps (from 150bps) – premised on a normal credit cost of 120bps guided by management.
(iv) We also revised our assumptions on the utilisation of tax benefits to be more conservative in FY25F, based on the average of the past four quarters, i.e., we now use -5.1% effective tax rate for FY25F (vs. -8% previously) and -3.9% for FY26F (vs. +0.9% previously).
Maintain BUY with a higher TP of THB2.22. As we fine-tuned our FY25F estimates and adjusted the number of shares (net of shares repurchased as of 1Q15), we derive a higher TP of THB2.22 (vs. THB2.18 previously) for TTB. Our TP is based on 0.9x FY25F P/BV, i.e., 1SD above its 5-year average. With its manageable asset quality, attractive dividend yield, and high earnings visibility, we maintain our BUY call on TTB.
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