Digital Transformation And Ecosystems Like My Car And Wealth Will Drive Revenue Growth And Enhance Profitability

Key Takeaways

• Digital transformation and cross-selling strategies aim to boost customer engagement and increase revenue, leveraging enhanced digital interactions and existing relationships.
  
• Prudent risk management and optimized funding structure focus on controlling costs and stabilizing net interest margins, leading to improved profitability.
  
• Slowing loan growth, rising debt, and digital transformation challenges pose risks to revenue, margins, and earnings stability.

Catalysts

Provides various commercial banking products and services to individuals, small and medium sized enterprises (SME), and corporate customers primarily in Thailand.

• The bank's focus on digital transformation and the development of its ttb Touch digital platform aims to increase customer engagement through personalized digital interactions and improved customer journeys, potentially leading to revenue growth through enhanced service offerings and efficient customer acquisition.
  
• The emphasis on cross-selling and deepening relationships with existing customers through ecosystems such as My Car, Salaryman, My Home, and Wealth is expected to increase the product holding per customer, thereby boosting revenue per customer and improving net margins by leveraging existing relationships.
  
• Strategic management of the liquidity book and funding cost structure, including the retirement of Tier 2 debt and controlling the cost of hybrid Tier 1 capital, is expected to stabilize earnings and maintain net interest margins (NIM), ultimately leading to improved earnings.
  
• By adopting a prudent risk management approach and conservative asset quality controls, the bank intends to keep non-performing loans (NPLs) at manageable levels, reducing provisions and enabling a stable asset base, which should contribute positively to net margins and profitability.
  
• Continued investment in digital initiatives and a shift towards a more flexible funding structure should reduce operational costs, leading to a lower cost/income ratio and potentially enhancing net earnings and return on equity (ROE) over time.

TMBThanachart Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TMBThanachart Bank's revenue will grow by 19.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 45.1% today to 30.3% in 3 years time.
• Analysts expect earnings to reach THB 23.8 billion (and earnings per share of THB 0.25) by about December 2027, up from THB 20.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting THB 27.6 billion in earnings, and the most bearish expecting THB 20.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2027 earnings, up from 8.6x today. This future PE is lower than the current PE for the TH Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 0.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.89%, as per the Simply Wall St company report.

TMBThanachart Bank Future Earnings Per Share Growth

Risks

• The slowing loan growth amidst a weak market environment, with decreasing demand for commercial, SME, and personal loans, poses a risk to revenue and net interest margins, impacting future earnings.
  
• Rising household debt and increasing non-performing loan (NPL) levels may lead to higher risk costs and provisions, affecting net margins and overall profitability.
  
• The challenge of sustaining fee income growth, particularly in the context of decreased lending activity, might put pressure on revenue diversification and overall earnings stability.
  
• The potential volatility in market rates and the reliance on maintaining liquidity without taking on excessive risks could affect the bank's ability to manage funding costs and support net interest income.
  
• Ongoing digital transformation and operational restructuring pose execution risks, which may impact the bank's ability to improve efficiency, reduce costs, and drive sustainable revenue growth.

Valuation

• The analysts have a consensus price target of THB 2.06 for TMBThanachart Bank based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB 2.3, and the most bearish reporting a price target of just THB 1.68.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be THB 78.5 billion, earnings will come to THB 23.8 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of THB 1.83, the analyst's price target of THB 2.06 is 11.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.