TTB – 2Q23: Beat on NIM, non-NII and credit cost

2Q23 beat forecasts on larger-than-expected NIM expansion, higher-than-expected non-NII growth and lower-than-expected credit cost (stable QoQ) with a contraction in loans and QoQ rising cost to income ratio. We maintain Neutral with a hike in TP to Bt1.7 from Bt1.5.

2Q23: Beat on NII, non-NII and asset quality. TTB reported 2Q23 earnings of Bt4.57bn (+6% QoQ, +33% YoY), beating INVX and consensus estimates by 18% and 12%, respectively. The beat was mainly on NII (better than expected NIM), non-NII and asset quality (lower than expected credit cost and NPLs).

Highlights:

• Asset quality: NPLs fell 3% QoQ or Bt1.3bn (+7.4% if write-offs & NPL sales are added back) as a result of Bt4.3bn in write-offs (vs. Bt2.9bn in 1Q23) and Bt1.8bn in NPL sales (vs. Bt1.4bn in 1Q23). Credit cost was stable QoQ at 1.25% vs. full-year guidance of 1.25-1.35%. LLR coverage rose to 144% from 140% at 1Q23. We conservatively maintain our 2023F credit cost at 1.3%.
• Loan growth: +0.4% QoQ, -2.1% YoY, and -0.9% YTD, well behind its full-year target of 3%. Retail loans were up a modest 0.5% QoQ and 0.3% YTD off high-yield loans such as personal loans, credit card loans, cash-your-car loans and cash-your-home loans. Corporate loans rose 0.7% QoQ but contracted 2.6% YTD. SME loans again contracted, by 0.9% QoQ and 2.7% YTD. We cut our 2023F loan growth to 1% from 3%.
• NIM: +14 bps QoQ as a 22 bps QoQ rise in yield on earning assets (higher proportion of high-yield loans) exceeded a 10 bps QoQ rise in cost of funds. We raise our 2023F NIM by 15 bps, reflecting a 20 bps NIM expansion.
• Non-NII: +10% QoQ (+6% YoY) due to larger other income and net fee & service income (+4% QoQ, +1% YoY). A QoQ rise in fee income came from bancassurance, credit card and investment banking fees.
• Cost to income ratio: +107 bps QoQ and -136 bps YoY to 44.53% on rising opex (+8% QoQ and YoY).

3Q23F and 2023F earnings outlook. We raise 2023F earnings by 10%, chiefly on an adjustment in NIM. 1H23 earnings accounted for 52% of our 2023F earnings forecast (+20%). In 3Q23F, we expect earnings to rise YoY but fall QoQ on larger provisions and opex.

Maintain Neutral with TP hike. We maintain Neutral with a hike in TP to Bt1.7 (0.7x PBV for 2024F) from Bt1.5 to reflect the upward revision in earnings and a roll over to 2024F valuation base. Currently trading at 0.6x PBV (relative to 7% ROE) and 9x 2023 PER, TTB’s valuation is less attractive than peers and valuation is unjustified against its asset quality risk.

Key risks: 1) Asset quality risk from a global economic slowdown and 2) slower-than-expected loan growth from sluggish loan demand and high competition.