Shift To High-Yield Retail Loans And Digital Engagement Will Drive Future Profitability

Key Takeaways

• Strategic focus on high-yielding retail loans and ecosystems aims to enhance profitability and non-interest income growth.
  
• Leveraging digital capabilities for customer engagement and multi-product relationships is expected to improve fee income and operating efficiency.
  
• Weak loan demand and intensified competition may limit profitability, with geopolitical tensions potentially increasing credit costs and threatening loan quality.

Catalysts

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

• The strategic focus on shifting the loan mix toward high-yielding retail loans and ecosystems, such as those for cars and homes, is expected to enhance risk-adjusted returns and non-interest income growth, impacting overall profitability.
  
• Leveraging digital capabilities to increase customer engagement and shift mono-product relationships to multi-product relationships is likely to drive higher fee income and improve operating efficiency, impacting net margins and earnings.
  
• Continued cost management strategies, including branch rationalization and increased digital engagement, are expected to lower operating costs and enhance the cost/income ratio, thereby improving net margins.
  
• Proactive asset-liability management to optimize net interest margin (NIM) and capital management strategies to enhance return on equity (ROE) aim to strengthen financial stability and revenue performance.
  
• Increasing digital penetration and deploying personalized customer experiences, including gamification and loyalty programs, are expected to improve customer engagement and retention, supporting future revenue streams and long-term growth.

TMBThanachart Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TMBThanachart Bank's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 42.4% today to 32.9% in 3 years time.
• Analysts expect earnings to reach THB 23.3 billion (and earnings per share of THB 0.26) by about January 2028, up from THB 21.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as THB19.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, up from 9.1x today. This future PE is greater than the current PE for the TH Banks industry at 7.9x.
• Analysts expect the number of shares outstanding to decline by 2.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.88%, as per the Simply Wall St company report.

TMBThanachart Bank Future Earnings Per Share Growth

Risks

• Continued low auto and housing loan sales, with the bank mentioning auto loans hitting a 10-year low, could limit revenue growth and profitability.
  
• With a focus on derisking and deleveraging amidst economic uncertainties, weakened loan demand from SMEs and large corporates may negatively affect loan growth and revenue streams.
  
• The ongoing tough competition in banking and auto loan markets could constrain margins and limit profitability, impacting earnings growth.
  
• Weak loan demand, linked to the broader macroeconomic environment, may result in reduced fee income and non-interest income growth, affecting overall earnings.
  
• The potential adverse effects of geopolitical tensions and global economic uncertainties could threaten loan quality and increase credit costs, impacting net margins and profitability.

Valuation

• The analysts have a consensus price target of THB2.08 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 THB2.3, and the most bearish reporting a price target of just THB1.75.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be THB70.8 billion, earnings will come to THB23.3 billion, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of THB1.97, the analyst's price target of THB2.08 is 5.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.