MTC – 2Q23: Slight beat on NIM

Slightly beating on NIM, 2Q23 results reflected a continued rise in NPLs with a QoQ rise in credit cost (better than expected), robust loan growth, better NIM, larger non-NII and easing cost to income ratio. We maintain our Neutral rating with a hike in TP to Bt38 from Bt36 due to a roll over to 2024. We expect 2H23 to recover both HoH and YoY on larger NII. In 2023F, good topline growth will be offset by higher credit cost and opex.

2Q23: Slight beat on NIM. 2Q23 net profit rose 12% QoQ (better toplines) but fell 13% YoY (larger provisions and opex) to Bt1.2bn, beating our forecast by 9% and consensus forecast by 10%. The beat was mainly due to larger NIM than expected.

Highlights:

1. Asset quality: MTC saw a decelerating rise in NPLs at 10% QoQ in 2Q23 vs. 14% QoQ in 1Q23, as a result of a 24% QoQ rise in write-offs. If write-offs are added back, NPLs would rise 27% QoQ in 2Q23 vs. 30% in 1Q23. Stage 2 loans inched up 3% QoQ. Credit cost rose 25 bps QoQ (+187 bps YoY) to 3.76%, in line with expectation. LLR coverage inched up to 107% from 105% at 1Q23. We maintain our 2023F credit cost at 3.75% (+105 bps) vs. 3.62% in 1H23.
2. Loan growth: Accelerating to 6% QoQ (vs. +4% QoQ in 1Q23), +24% YoY and +10% YTD in 2Q23. We maintain our 2023F loan growth at 22%.
3. NIM: +21 bps QoQ (-36 bps YoY), better than expected. Yield on loans rose 27 bps QoQ. Cost of funds rose 7 bps QoQ.
4. Non-NII: +23% QoQ (+38% YoY), mainly due to higher fee income.
5. Cost to income ratio: -119 bps QoQ (+123 bps YoY) to 47.99%, as a rise in toplines exceeded a 5% QoQ rise in opex.

3Q23F and 2023F outlook. 1H23 earnings accounted for 44% of our full-year forecast. In 2H23F, we expect earnings to rise HoH (with a QoQ rise in 3Q23 and 4Q24) and YoY due to larger NII. In 2023F, we expect earnings to be stable, underpinned by a 105 bps rise in credit cost, 22% loan growth, a 42 bps fall in NIM and a slip in cost to income ratio.

Maintain Neutral with a rolled over TP. We maintain our Neutral rating with a hike in TP to Bt38 (2.15x PBV or 13.5x PE for 2024F) from Bt36 as we rolled over our valuation base to 2024.

Risks. 1) Asset quality risk from an uneven economic recovery and a potential El Nino, 2) NIM risk from rising interest rates, 3) rising competition from banks as “virtual banks” emerge over the next few years and 4) regulatory risk.