TTB (HOLD, Fair Price : Bt1.85) : Focus on quality growth
We maintain HOLD rating with a fair price of Bt1.85. TTB’s net profit in 3Q23 came in at Bt4.7bn (+27.5% YoY, +3.7% QoQ). Having attended the analyst meeting, we fine-tuned our earnings growth projections to reflect NIM improvement from the recent rate hikes. We thus expect its net profit to rise by 25.4% in 2023. For 4Q23, net profit is likely to increase by 9% YoY (-11% QoQ). We think that a strong growth story that supports the stock price will diminish in 2024, given the expected slower growth of 6.3% in 2024. With the limited upside gain, we recommend HOLD for an attractive dividend yield of 5.4-5.9% for 2023-25.
Analyst meeting
• Management preferred to concentrate on loan quality management and cost-efficiency strategy rather than growing the balance sheet in 2024, given uncertainty about loan quality deterioration, geopolitical conflicts, and a Bt10,000 digital handout from the government.
• The bank expected NIM to peak in 4Q23 and likely stay high in 2024 as there were no interest rate cuts in Thailand. But the bank would anticipate a shaper rise in funding costs in 2024 from deposit competition ahead.
• Credit cost would be stable YoY around 125bps in 2024 as the bank prudently needed more loan loss reserves to prepare for additional NPL write-offs and NPL sales to stabilize the quality of the loan portfolio.
• To sustain high ROE amid slow loan growth, the bank would continue its high payout ratio.
3Q23 earnings were 8% higher than expectations
Net profit came in at Bt4.7bn in 3Q23 (+27.5%, +3.7% QoQ). Higher net interest income from NIM expansion supported the YoY and QoQ rises. Asset quality was relatively stable, with an NPL ratio of 2.7% and a coverage ratio of 143.7%.
**Earnings growth will decelerate in 2024-25 **
TTB has benefited from the interest rate upcycle like other banks. NIM is anticipated to increase further in 4Q23. We raised our net profit forecast by 4%/2%/2% in 2023-25. We expect strong earnings growth of 25.4% in 2023. The growth would decelerate to 6.3% in 2024 as gains from the NIM increase will diminish and higher operating expenses from IT infrastructure investments. The ROE is expected to be around 8.0-8.1% in 2023-25.
Maintain HOLD with a fair price of Bt1.85
Our valuation is derived from the GGM model (ROE 8%, growth 2%), which implies a 0.75x PBV’24E. The stock has outperformed with a rise of 22% so far this year, providing a limited upside gain, but a dividend yield makes it attractive to HOLD.
