Thai banks' NIM 'remarkably stable' at 3% for 4 years

Loans were up 12.4%.

According to Maybank Kim Eng, in 1Q13 Thai banks produced solid EPS growth of 15%. Future growth should be driven by loans rather than from widening margins, which have been flat at 3% for the past three years. 

Here's more from Maybank Kim Eng:

Previously, we preferred TISCO and TCAP but we now rate KTB as second most attractive of the ten Thai banks. Our research shows that there is no need to own more than the top two most attractive.

Strong and steady. Over the past five years, pre-provision profits of the Thai banks have grown by about 18% and 1Q13 was a strong 25%. Net interest margin has been remarkably stable at 3% for four years.

Loans were up 12.4%, but the real success story is that in four years gross fee income has moved to 49% of total income from 37%. Bank equity is strong at 9.3% of assets, up from last year’s 8.9%.

Most importantly, returns have been steadily rising for the past three years with 1Q13 producing a 17.5% ROE. Balance sheet provisions are stable at 3% of assets.

First choice: TISCO. Margins have been stable at 2.8% for five quarters, showing that margin pressure from rising funding costs is over. The bank has now switched almost all of its bills of exchange into deposits.

TISCO has done well to push up its ROE to 25% from 20% last year. An attractive valuation with high ROE means that its 1.9x PB is good value for money.

Second choice: KTB. Asset growth was moderate at about 11% in 1Q13, while non-interest income was up a strong 41%. Low fee generation has always been KTB’s weak point, but that could add to growth if the bank continues to perform well; improving profitability and mega project loan attracts us to KTB.

Third choice: TCAP. TCAP’s ROE could rise due to economies of scale now that its nationwide branch expansion is complete, which should improve profitability.

The risk is that management does not deliver. With the stock trading on a very cheap 1.1x 2013IBES PB, the worse case should be that the stock does not move much.