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Myanmar Citizens Bank Ltd. (MCB)

Non‐rated (16/17E Target Price Kyat 6,400) Close Kyat 6,000 (OTC)

Banking August 26, 2016

Strong growth down the road

Share data

OTC Closing Price (Kyat , USD) 6,000/ 4.65

Paid‐up Shares (mn) 10.40

Par (Kyat , USD) 5,000/ 3.88

Market cap (Kyat bn/ USDmn) 62 / 48

Listing date 26 August 2016

URL www.mcb.com.mm

Major Shareholders (31 July 2016 ) % Holding

Capital Diamond Star Group Ltd. 41%

Good Brothers Machinery Co., Ltd. 11%

Ministry of Commerce 10%

Shwe Me Co., Ltd. 8%

Others 31%

Prapharas Nonthapiboon

Analyst, no 17836

[email protected]

66 (0) 2695‐5872

Among top gainers positioned to capitalize growth Given that the financial sector in Myanmar remains in the early expansion stage, Myanmar Citizens Bank Ltd. (MCB), seventh‐ranked by assets among private banks and a semi‐governmental bank with a close relationship with the Ministry of Commerce, its major shareholder, should be one of the prime beneficiaries of these impetuses. In addition, the bank’s tight relationship with the Myanmar Payment Union (MPU) coupled with its solid balance sheet should put MCB in a better position to capture growth. 2017 target price of Kyat 6,400 based on 2016/17E P/BV of 1.0x We derive a 2017E target price for MCB at Kyat 6,400/share, for implied target P/BV of 1.0x based on the Gordon growth model (GGM). This is quite comparable to Indochina banks’ average P/BV of ~1.0x. Expect a sound 21% net profit CAGR in FY2017‐19E The robust earnings should be driven mainly by the solid loan growth of 27% and 24% for non‐interest income in 2017‐19E. This should primarily be backed by Myanmar’s sound economic growth and the supportive industry outlook as well as the bank’s strong positioning in the field. Promising growth outlook; the challenge is stability We see the growth of Myanmar’s banking sector continuing to outpace CLMV and regional peers. This should also be thanks to 1) the Myanmar banking sector’s low penetration rate; 2) favorable economic growth; and 3) the ongoing progress of economic and financial reforms. However, the key challenge is the banking system’s stability over the longer term given that Myanmar banks will still take several years to be compliant with international practices. Upside/downside risks The main potential downside risks to its profitability could come from 1) regulatory risk as Myanmar banks still have to comply with international standards over the long term; and 2) asset quality risk; and 3) the likelihood of more intense competition in Myanmar’s banking system. Meanwhile, the main catalyst could come from Myanmar’s favorable macro growth, which should boost banking system growth. Financials and Valuation

FY Ended 31 Mar 2015 2016 2017E 20187E 2019E

Net profit (Kyat mn) 3,771 5,308 6,557 7,875 9,396

EPS (Kyat) 508 532 546 606 671

EPS growth (%) ‐26% 5% 3% 11% 11%

BVPS (Kyat) 6,049 6,163 6,356 6,562 6,782

DPS (Kyat) 650 650 382 424 470

FY Ended 31 Mar 2015 2016 2017E 20187E 2019E

PER (X) 11.81 11.27 10.98 9.90 8.94

PBV (X) 0.99 0.97 0.94 0.91 0.88

Dividend yield (%) 10.83 10.83 6.37 7.07 7.83

ROE (%) 11% 10% 10% 10% 10%

Company Report


Investment Highlights

Given that the financial sector in Myanmar remains in the early expansion stage backed

especially by the country’s favorable GDP growth, Myanmar Citizens Bank Ltd. (MCB), as

the seventh‐ranked bank by assets among private banks and a semi‐governmental bank

with strong government support, should be one of the prime beneficiaries of these

impetuses.

Note that the IMF expects Myanmar’s economy to grow at a robust pace of 8.5% in 2015

and 8.4% in 2016 and projects the system’s lending to the private sector to show continuing

favorable growth of around 45% in 2015E and CAGR of 32% in 2016‐18E (see figure 1).

In addition, MCB is a semi‐governmental bank that has a close relationship with the

Ministry of Commerce, which holds a 10% stake. On top of that, the bank’s tight

relationship with the Myanmar Payment Union (MPU) coupled with its solid balance sheet

(especially in regard to its strong capital and liquidity positions) should put MCB in a better

position to capitalize on the favorable growth outlook of the banking system and the macro

front as well as to continue outperforming vs. peers in terms of earnings growth.

We expect MCB to post favorable earnings growth with a projected net profit compound

annual growth rate (CARG) of 21% and EPS CAGR of 8% (due to the share dilution effect on

the bank’s planned capital raising plan, see Figure 15) over the next three fiscal years, i.e.,

2017‐2019E, Figure 17‐18). The main drivers for net profit growth should come from 1)

anticipated average loan growth of 27% in 2017‐19E; and 2) solid average non‐interest

income growth of 24%. This should be thanks to sound GDP growth projected by the IMF at

around 8.0‐8.5% and the supportive industry outlook, which should benefit from the strong

credit growth on ongoing economic and financial reforms as well as a better political

environment.

Figure 1: Real GDP growth vs. credit growth Figure 2: Credit and deposits to GDP

5.6 7.3 8.4 8.5 8.5 8.4

25.1

5.1

24.628.8

34.730.3

60.1

50.5 52.535.5

45.236.7

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015E 2016E

Real GDP growth (%)

Domestic credit growth (%)

Credit to private sector growth (%)

7.5 10.313.7

16.1 19.221.7

16.2

24.6

30.232.5 35.1

37.5

46.544.2

48.4

55.1

60.865.7

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015E 2016E

Credit to private sector (% to GDP)

Deposits (% to GDP)

Credit to deposits (Loans to deposits) %

%

Source: IMF, Central Bank of Myanmar (CBM) Source: IMF, Central Bank of Myanmar (CBM)


Valuation

2017 target price of Kyat 6,400 based on 2016/17E P/BV of 1.0x

Our valuation for MCB is based on the Gordon growth model (GGM) where we assume

long‐term sustainable ROE of 12%. Accordingly, we derive a 2016/17E target price for MCB

at Kyat 6,400/share, for an implied target P/BV of 1.0x. This is relatively comparable to

Indochina banks’ average of around 1.0x; see Figure 3.

Note that our target P/BV for MCB of 1.0x, which is higher than BCEL LS (the only listed Lao

bank, which currently faces higher NPL risks and limited capital due to the ongoing delay in

its recapitalization plan), is backed by MCB’s stronger financial positions and earnings

growth. However, the main risk to the target price and earnings of MCB could come from

the potential negative impacts arising from compliance with international standards over

the longer term.

In terms of the price performance for the two listed firms (FMI and MTSH), we see a price

rally for these firms in the early weeks of trading and price weakening afterward; see Figure

4‐7.

Figure 3: Financial and valuation summary vs. regional peers

Regional

Banks 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E

China ‐2 3 6.6 6.1 0.8 0.8 4.4 5.4 13.1 13.3

Hong Kong ‐21 9 27.2 25.8 2.0 2.0 3.4 3.7 9.5 9.1

India ‐19 26 8.3 15.0 1.5 1.7 0.9 1.8 3.4 11.2

Indonesia 2 15 13.9 11.8 1.7 1.5 2.1 2.4 12.9 13.1

Korea 8 8 6.8 6.8 0.5 0.4 3.2 3.4 7.1 6.6

Malaysia ‐3 8 12.0 11.4 1.1 1.1 3.7 4.1 10.4 10.4

Philippines 10 12 14.5 12.8 1.5 1.4 1.5 1.6 10.8 10.9

Singapore ‐9 3 9.7 9.4 0.9 0.9 4.1 4.2 10.1 9.8

Thailand 0.0 14 11.9 9.5 1.2 1.1 3.8 4.1 10.7 11.7

Vietnam 11 19 22.4 16.7 1.4 1.3 3.3 3.9 8.2 9.3

BCEL LS ‐21 29 6.4 5.0 0.5 0.5 5.4 6.0 8.2 10.0

Regional Avg. ‐4 13 12.7 11.8 1.2 1.2 3.2 3.7 9.5 10.5

Indochina Avg.* ‐3 20 13.6 10.4 1.0 1.0 4.2 4.7 9.0 10.3

Myanmar

Banks FY16/17 FY17/18 FY16/17 FY17/18 FY16/17 FY17/18 FY16/17 FY17/18 FY16/17 FY17/18

MCB** 24 20 11.0 9.9 0.9 0.9 6.4 7.1 9.5 9.7

ROE (%)PER (X) P/BV (X) Dividend yield (%)NP growth (%)

NP growth (%) PER (X) P/BV (X) Dividend yield (%) ROE (%)

Source: KTZMICO Research, Bloomberg * Fiscal year ended March/ ** Regional average excluding BCEL LS (Lao bank)

Figure 4: FMI and MTSH price performance relative to YSX Figure 5: YSX Index and market capitalization

Source: YSX, KT ZMICO Research Source: YSX, KT ZMICO Research

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Mkt. Cap. (m. MMK) MYANPIX INDEX

Index MarketCap.Myanmar Market cap

First Myanmar Investment

Myanmar Thilawa SEZ Holdings

40

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140

160

25‐Mar‐16 24‐Apr‐16 24‐May‐16 23‐Jun‐16 23‐Jul‐16 22‐Aug‐16

MYANPIX INDEX FMI MTSH

88.00

69.47

64.52


Figure 6: FMI Price Chart Figure 7: MTSH Price Chart

Source: YSX, KT ZMICO Research Source: YSX, KT ZMICO Research

Company Background

Myanmar Citizens Bank Ltd. (MCB) is a public bank established in 1991 and starting operations

on 2 June 1992. The bank is a semi‐governmental bank, with the government’s shareholding

administered through the Ministry of Commerce holding 10% as of July‐16; see shareholding

structure in Figure 12‐13.

It is considered a medium‐sized bank ranked seventh in terms of assets and deposits among

private banks as per the bank’s indication. The bank is also listed on the OTC (over‐the‐

counter) market, MSEC (Myanmar Securities Exchange Centre) and it will be listed on the

Yangon Stock Exchange (YSX) on 26 August 2016. To date, the bank had 21 branches across the

country and it plans to open 50 branches over the next five years.

MCB’s current principal activities are retail and corporate banking, in which the bank has a

competitive edge over peers. As it is one of the government’s banking arms with the Ministry

of Commerce being one of the bank’s major shareholders, this greatly enhances the bank’s

business opportunities and profitability. In particular, MCB has been appointed to facilitate the

ministry’s push toward increasing export/import activities in Myanmar and has, in partnership

with the Ministry of Commerce, established an e‐payment system to facilitate the payment of

export/import license fees to the Ministry of Commerce.

The bank started its international banking systems/services in 2003. It aims to be a leading

bank in international banking and trade finance activities and has managed currently to link up

with 27 offshore correspondent banks. Currently, this department accounts for 15% of the

banks’ profits.

MCB was also the initial member of the MPU (Myanmar Payment Union) and it possesses a

founder’s share. It also received approval for a mobile payment license in May 2015.

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FMI


Figure 8: Loans by Business Type FY16 (as of Mar‐16) Figure 9: Deposit Structure FY16 (as of Mar‐16)

Industrial 23%

Trading 36%

Service 27%

Construction

11%

Others 4%

Savings 45%

Time deposits

32%

Current

account 23%

Source: MCB, KTZMICO Research Source: MCB, KTZMICO Research

Figure 10: Income Structure for financial year 2016 Figure 11: Non‐interest Income Structure FY16 (as of Mar‐16)

24% 27% 25%

22% 19% 24%

19% 18%

51%35% 37%

0%

20%

40%

60%

80%

100%

2014 2015 2016

Others

Foreign Exchange Transaction

Service income

Commission on payment orders & remittances

89 88 80 74

52 48 55 64 65 65

11 12 20 26

48 52 45 36 35 35

0%

20%

40%

60%

80%

100%

2010 2011 2012 2013 2014 2015 2016 2017E 20187E 2019E

Net Interest Income Non‐Interest Income


Figure 12: Shareholding structure (31 Mar‐16) Figure 13: Pre listing shareholding structure (31 Jul‐16)

Capital Diamond Star Group

Ltd. 17%

Ministry of Commerce

15%

Diamond Star Co., Ltd. 14%Shwe Me

Co., Ltd. 9%

Good Brothers Co., Ltd.

7%

Good Brothers Machinery

Co., Ltd. 6%

Others 33%Capital Diamond Star Group

Ltd. 41%

Ministry of Commerce

10%

Shwe Me Co., Ltd. 8%

Good Brothers Machinery

Co., Ltd. 11%

Others 31%

Source: YSX, MCB, KT ZMICO Research

Note: Capital Diamond Star Group, is one of the largest conglomerates in Myanmar and we can find its retailing businesses

everywhere in downtown areas. It also operates food, real estate, healthcare and portfolio management businesses; see more details

in the website http://www.cdsg.com.mm/. Good Brother’s main business is agricultural plants & machinery and Shwe Me’s is

logistics business.


Figure 14: Company Profile (Myanmar Citizens Bank Ltd.)

Company Name Myanmar Citizens Bank Ltd. (MCB)

Code 00003 ISIN code MM0000300002

Date Formed 30th October 1991 Management U Myint Win Managing Director

Date Listed 26th August 2016 Fiscal year 1st April to 31st March

Outstanding Shares 10,400,986 shares

(as of 31st July 2016)

Paid‐up Capital MMK 52004.930 million

(as of 31st July 2016)

Phone 01‐245938 Email [email protected]

Address Building No. 383, Mahabandoola Road, Kyauktada Township, Yangon, Myanmar

Business MCB is a public bank established in 1991, under Special Company Act. MCB started its business on 2‐6‐1992 at No. 383, Mahabandoola Road, Kyauktada Township, Yangon. Authorized capital of MCB is 75 billion kyat and its paid‐up capital is 52 billion kyat.

MCB offers the following domestic banking services:

(1) Savings Deposits

(2) Current Deposits

(3) Time Deposits

(4) Call Deposits

(5) E‐payment service for Import License fee payments

(6) Internal Remittance and

(7) Payment Orders

Loan Services of MCB are as follows:

(1) Commercial Loans

(2) Pledge Loans

(3) Trade Guarantees

(4) Bank Guarantees / Performance Guarantees

International Banking Services are as follows:

(1) Export & Import Services (L/C, TT)

(2) International Remittance and International Money Transfer Services (Money Gram, IME, Transfast, Merchantrade)

(3) Guarantee Issuing Service

(4) International Card Business (Visa / MasterCard Acquiring, MasterCard Issuing)

(5) Money Changer Service

(6) Foreign Exchange Market

(7) Payment Orders

Hire Purchase Services are as follows:

(1) HP for agricultural equipment

(2) HP for motor vehicles

(3) HP for various rice mill equipment

(4) HP for various construction machinery and equipment

MCB also offers the following services:

(1) 663 Mobile payment services

(2) MPU Card Issuing & JCB, CUP Acquiring Service

(3) Meter Bill Service


Board of Directors (1) U Toe Aung Myint ( Chairman)

(2) U Myint Win (Managing Director)

(3) U Soe Naing @ U Ko Ko Gyi (Director)

(4) U Hla Oo (Director)

(5) U Tun Lwin (Director)

(6) U Own Saing (Director)

(7) U Aung Aung (Director)

(8) U Mg Mg Tin (Director)

(9) U Zeya Thura Mon (Director)

(10) U Yan Naing Tun (Director)

(11) U Zaw Lin Htut (Independent Director)

(12) U Maung Aung (Independent Director)

Website http://www.mcb.com.mm

Lead Securities Company Myanmar Securities Exchange Centre Co., Ltd

Auditor U HlaTun & Associates Limited

Company History MCB is a public bank established in 1991, with company registration No. (274/1991‐92) granted on 30.10.1991, under the Special Company Act. With Banking License no. Ma Ba Ba/ J (i) ‐1(5)1992 granted by the Central Bank of Myanmar on the 25 May 1992, MCB started its business on June 1992 at No. 383, Maharbandoola Road, Kyauktada Township, Yangon.

Authorized capital of MCB at the time of establishment, in June 1992, was 1 billion kyat. Now, authorized capital is 75 billion kyat and paid‐up capital is 52 billion kyat. Of 52 billion kyat in paid‐up capital, the Ministry of Commerce has paid‐up capital of 5.12 billion kyat with public paid‐up capital of 46.88 billion kyat.

Its branches and mini‐branches were opened as follows:

Bank Opening date

1. Kyauktada Branch 2‐6‐1992

2. Mandalay Branch 6‐6‐1996

3. Bayint Naung Branch 12‐5‐2011

4. Nay Pyi Taw Branch 22‐6‐2011

5. Myin Chan Branch 12‐8‐2011

6. Monywa Branch 15‐8‐2011

7. Muse Branch 17‐10‐2011

8. Yasakgyo Branch 14‐12‐2012

9. Taze Branch 26‐4‐2013

10. Mandalay Mini Branch 12‐7‐2013

11. Monywa Mini Branch 23‐8‐2013

12. Dawbon Mini Branch 20‐12‐2013

13. Lasho Branch 1‐3‐2014

14. Aung Lan Branch 20‐6‐2014

15. Bayint Naung Mini Branch 25‐10‐2014

16. Pabedan Mini Branch 17‐12‐2014

17. Puzundaung Branch 6‐12‐2015

18. North Okkalarpa Branch 1‐3‐2016

19. Pyay Branch 1‐5‐2016

20. Latha Branch 4‐6‐2016

21. Sittwe Branch 7‐6‐2016


MCB was granted a Foreign Exchange Authorized Dealer License by the CBM on 17 August 2012 and became a member of the Society for Worldwide Inter Bank Financial Telecommunication (SWIFT) on 5 January 2013. MCB has established correspondent bank relationships and maintained NOSTRO accounts with UOB, OCBC, DBS, Commerz Bank, ICBC, May Bank, Kasikorn Bank, Siam Commercial Bank and Krung Thai Bank and has RMA relationships with 47 banks.

By connecting with correspondent banks, MCB is currently providing Foreign Currency Current Account opening, Export/Import Settlements, Cash disbursement, Bank Guarantees, Account Transfers and Foreign Exchange Market activities to customers.

MCB was granted a money changer license on 24 October 2011 and it has opened money changer counters at Kyauktada Branch, Muse Branch, Mandalay Branch and Dawpon Mini Branch.

MCB has offered Acquiring services for Visa, MasterCard since 2014 and issues "Citizen Card", branded by MasterCard.

MCB has partnered with Money Gram, IME, Transfast, Merchantrade to offer inbound money transfer services.

MCB started its Mobile Payment Services (663), to offer service to unbanked and rural areas, in July, 2015.

MCB listed on Yangon Stock Exchange in August 2016. Source: YSX, MCB, KT ZMICO Research

Figure 15: MCB’s share capital history and capital raising plan

Financial Year ended March Paid‐up capital (Kyat mn)

2014‐2015 37,113

2015‐2016 49,870

July 2016 52,005

2016‐2017 60,000

2017‐2018 65,000

2018‐2019 70,000

2019‐2020 72,000

2020‐2021 75,000 Source: MCB, KTZMICO Research


Earnings prospects Impressive earnings growth with 43% net profit CAGR in the past three years

MCB recorded an impressive earnings growth over the past three years with 43% net profit

CAGR during its financial year 2014‐16 (Figure 17‐18). The strong net profit growth was backed

mainly by the robust loan CAGR of 38% and 56% (excluding some extraordinarily high income

related to foreign exchange transactions in 2016) for non‐interest income for the same period.

This should be thanks especially to Myanmar’s sound GDP growth of around 8.5% in the past

three years (Figure 1). Note that the robust non‐interest growth in recent years, especially for

2016, was largely boosted by the strong growth in fees related to foreign exchange

transactions, international banking and trade finance activities (currently, this department

accounts for 15% of the bank’s profits) as well as remittances and transactional banking. We

still expect this growth momentum to continue going forward (Figure 17‐18).

Expect a solid 21% net profit CAGR in the next three years

We expect MCB to post a favorable earnings growth with projected net profit CARG of 21%

and EPS CAGR of 8% (due to the share dilution effect on the bank’s planned capital raising

plan, Figure 15) over the next three years during fiscal year ended 2017‐2019E, Figure 17‐18).

The main drivers for net profit growth should likely come from 1) an anticipated average loan

growth of 27% in 2017‐19E; and 2) a solid non‐interest income average growth of 24%. This

should be thanks to the projected sound GDP growth by IMF of around 8.0‐8.5% and the

supportive industry outlook which should benefit from the strong credit growth on ongoing

economic and financial reforms as well as better political environment.

Moreover, the main loan growth drivers should come from corporate and retail hire purchase

lending. Meanwhile, we expect the bank’s net interest margin (NIM) to decline slightly on a

more competitive environment, especially on the deposit side.

The bank’s main strategic intents

The bank’s main strategic intents for 2017E and in the long term mainly include:

1) Opening 50 branches over five years

2) Expanding the bank’s network, especially online banking services, and strengthening its

position in the domestic banking sphere, particularly in retail and corporate banking.

3) Focusing on loans in the trading, industrial and services sectors where risk is lower vs. the

agricultural and livestock segments.

4) Due to the involvement of the Ministry of Commerce as shareholders and directors in the

company, the bank has the competitive advantage of being well versed in the foreign

trade sector as well as the international banking sector.

5) Expanding hire purchase lending into multiple products after its proven success in

providing hire purchase financing services with respect to the sale of agricultural

equipment to farmers, particularly in the Mandalay, Sagaing, Yangon and Ayeyarwaddy

regions. In light of such success, the bank intends to expand such services throughout the

entire country. In addition, the bank also plans to expand to other hire purchase products

with good potential (i.e., various machinery and equipment for business use, residential

apartments, motor vehicles and telephone handsets). Note that its hire purchase loans

accounted for around 24% of total loans as of Mar‐16.


Potential downside risks to earnings

As stated in the earlier report, Myanmar’s accounting and transparency standards still lag

regional peers including the banking sector. We expect that it will take Myanmar banks several

years to be compliant with international practices. The potential main risks to our earnings

forecasts for MCB could come from:

1) The potential of booking provision expenses in the profit and loss statement: Note that

Myanmar banks, including MCB, still set aside and book provision expenses for loan loss

through the retained earnings item in shareholders’ equity vs. the booking of such

expenses through the profit and loss statement based on the international standard. Note

also that the provision expenses that the bank booked in the past three years accounted

for around 8‐10% of its net profit for the period.

In the event that the CMB changes the provision accounting standard to be in line with the

international standard (there has been no indication from CBM as of yet), we could see

potential downside risk to MCB’s net profit for 2017‐19E of around 7‐8% based on the

assumption of the bank’s current loan loss reserve policy of 2% of gross loans. Note that

the impact could increase to 11‐14% of net profit for 2017‐19E, respectively, if we assume

the bank to set a general provision at the levels of 2.2%, 2.5% and 2.75% of loans for 2017‐

19E respectively; see Figure 16.

Figure 16: Provision expenses booked through retained earnings during 2014‐2016

Fiscal year ended March 2014 2015 2016 2017‐19E* 2017‐19E**

General provision expenses for loans (Kyat mn) 333 525 563 692‐937 991‐1,756

% Provision expenses/Net profit 9.9% 10.5% 8.0% 7‐8% 11‐14%

Source: KTZMICO Research, Bloomberg * Assume the bank’s current reserve policy of 2% of gross loans ** Assume the bank’s reserve policy of 2.2%, 2.5% and 2.7% of gross loans for 2017‐19E respectively

2) Change in reserve/provisioning policy required by CBM: As noted earlier, the current

reserve policy for loan loss required by the CBM is at 2% of gross loans with no

requirement for any specific provision yet. For a longer‐term perspective, we expect the

CBM’s provisioning policy to include a specific provision requirement to be more in line

with the international standard. This could post additional downside earnings risk to

Myanmar banks and MCB. Note that there is still no exact indication from the CBM in

relation to the new requirement as well as the timeframe yet.

Figure 17: Net profit vs. growth and ROE Figure 18: Loans, NII and Non‐NII growth vs. NIM

781 1,066

1,805 2,513

3,771

5,308

6,557

7,875

9,396

57%

37%

69%

39%

50%

41%

24%20% 19%18% 20%

13% 12% 11% 10% 10% 10% 10%0%

10%

20%

30%

40%

50%

60%

70%

80%

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2011 2012 2013 2014 2015 2016 2017E 20187E 2019E

Net profit Growth ROE

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

‐20%

0%

20%

40%

60%

80%

100%

120%

140%

2013 2014 2015 2016 2017E 20187E 2019E

Net Interest Income Growth Non‐Interest Income Growth

Loan Growth Net interest margin (NIM)‐RHS



Financial Position

Asset quality and provisioning standards for Myanmar banks still lag regional banks

It should be noted that the NPL definition and the provisioning policy for Myanmar banks still

lag regional bank peers. MCB (likely the same as other Myanmar banks) classifies loans as NPLs

when loans with interest payments and principal are overdue for more than 6 months, which

lags behind other regional banks that use criteria of > 3 months overdue interest payments.

Moreover, in terms of the provisioning policy, the Central Bank of Myanmar (CBM) requires

Myanmar banks to set a provision of only 2% of gross loans for all loan classes with no specific

or additional provision required for NPL classes. This standard is relatively more relaxed when

compared with Thai and regional banks, which require higher provisioning for NPL classes (see

Figure 19‐20). Moreover, provisions are normally made at the end of the budget year as per

CBM instructions.

In a longer‐term perspective, the CBM should gradually raise the key accounting standards and

regulations (i.e., financial reporting, provisioning, NPLs and capital standards as well as

income/expenses recognition) for Myanmar banks to be more in line with international

standards. These could post potential downside risk to MCB’s earnings outlook (see more

details in the Earnings Prospects section).

Figure 19: Myanmar’s NPL definitions and provisioning policy vs. regional banks

Loan classification by age Criteria Provisioning Policy

(months past due) Thailand Vietnam Laos Myanmar

1 Current no 1%** 0.75%* 1%** 2%*

2 Special mention loans (<3 months) 2%** 5%** 3%** 2%*

3 Sub‐standard loans (>3‐6 months) 100%** 20%** 20%** 2%*

4 Doubtful loans (>6‐12 months) 100%** 50%** 50%** 2%*

5 Bad loans (>12 months) 100%** 100%** 100%** 2%*

*% of gross loans

**% of loans net of collateral (% shortfall in security value)

NPLs

Source: Central Banks and KT ZMICO Research

Note that Myanmar data are based on MCB, CBM and other related sources.

Figure 20: CBM’s revised criteria on loan classification and NPL definition

Loan classification NPL definitions

MCB previous Criteria CBM's new revised criteria

Past due Past due

Standard loans No days No days

Watch loans 31‐60 days

Sub‐standard loans 6‐12 months 61‐90 days

Doubtful loans >12‐24months 91‐180 days

Bad loans >24 months >180 days

Source: CBM and KT ZMICO Research

NPLs


Solid balance sheet should put MCB in a better position to capture growth

MCB’s financial positions are relatively solid especially in regard to the bank’s high capital and

liquidity positions. The bank’s capital adequacy ratio (CAR) and the liquidity ratio for financial

year 2016 ended Mar‐16 stood at 77% and 50%, respectively, much higher than the CBM’s

minimum requirement of 10% and 20%, respectively.

Meanwhile, the loan‐to‐deposit ratio has been at a quite comfortable level of 80% in 2016,

relatively comparable to 85% for Thai banks but much higher vs. ~55% for Myanmar’s banking

system and just 51% for BECL (only listed bank in the Lao Stock Exchange). This reflects MCB’s

higher credit growth and its better balance sheet leverage vs. the system. Note that MCB still

aims to keep its LDR at around 80%. The bank’s solid balance sheet will enable it to capture the

favorable growth in the banking system and macro front.

The bank’s NPL ratio has been quite stable at around 1.5‐2% during 2012‐2016 (see Figure 22),

which was still in line with the bank’s effort to control its NPL ratio at no more than 2%.

However, as mentioned earlier, the NPL definition and provisioning policy for Myanmar banks

still lags behind regional peers.

Figure 21: LDR, Loans to Assets vs. Liquidity ratio Figure 22: NPLs/Loans vs. Capital Adequacy Ratio

80% 78% 79% 79%84%

80%

64%61%

54%58%

53%50%

28%

42%

30%33%

50%

20%

30%

40%

50%

60%

70%

80%

90%

2011 2012 2013 2014 2015 2016

Loans to Deposits (LDR) Loans to Assets Liquidity ratio

1.3%

1.6%

1.4%

2.2%

2.1%

45%

82%

54% 70%

74%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2012 2013 2014 2015 2016NPLs/Loans (RHS) Capital Adequacy Ratio (LHS)


Figure 23: Basel standard Figure 24: Capital Adequacy of Private Banks

Country BIS Standard

Cambodia Basel I

Lao PDR Basel I

Myanmar Basel I

Vietnam Basel I

Brunei Basel I

Indonesia Basel II

India Basel III

Thailand Basel III

Philippines Basel III

Malaysia Basel III

Singapore Basel III

Hong Kong Basel III

Australia Basel III

Japan Basel III

Taiwan Basel III

Source: BIS, Central banks Source: CBM, IMF


Figure 25: CBM's current key regulations for Myanmar banks

CBM's current key requirements for Myanmar banks

Cash ratio 5%

Liquidity ratio 20%

Capital adequacy ratio 10%

Single lending limit 20%

General provision 2% of gross loans

Specific provision No specific requirement

NPL definition >6 month overdue payment

Minimum reserve requirement 10% of deposits

at least 5% cash deposit with CBM

CMB policy rate 10%

Lending rate 13% (Max)

Deposit rate 8% (Min)

‐Call 4.0‐8.5%

‐Saving 8.0‐8.25%

‐Time 8‐10%

Key Lending regulations/restrictions

* All loans must be collateralized.

* Loan duration cannot be longer than one year.

* Lending rates capped at 13% and deposits required to pay at least 8%.

* Banks are only allowed to lend 70‐80% of total deposits.

Source: CBM, KT ZMICO Research and other related sources


Industry Outlook

Banking sector has grown rapidly over recent years

Myanmar’s financial system is at the early stage of development. The country is mainly a cash‐

based economy as less than 20% of the population has access to formal financial services, with

rural areas in particular having limited access to banking services. Despite fast growth in recent

years (private credit grew 50% over the past four years, especially private banks, which

continue to gain shares over SOBs), the banking system remains small relative to regional

countries with credit to the private sector as of Feb‐15 amounting to only 16% of the country’s

GDP (private banks contribute 14% of GDP). Meanwhile, total banking assets accounted for

58% of the country’s GDP as of Feb‐15 (more than half from private banks), up from ~48% of

GDP over the past two years.

Meanwhile, the current range of banking products and services remains quite limited and the

transparency and risk management standards for Myanmar banks still lag CLMV and regional

banks, especially in terms of accounting. In addition, given the fact that there is still no credit

bureau in Myanmar, questions about the reliability of financial data, especially data on asset

quality, NPLs, and provisioning, may lead to difficulties in regard to proper analysis.

Growth outlook not in doubt; the challenge is stability

Given that the financial sector in Myanmar remains in the expansion stage, especially when

compared with regional bank peers, we see the growth of the Myanmar banking sector

continuing to outpace CLMV and regional peers. This should be underpinned by 1) the low

base and low penetration rate of Myanmar’s banking sector; 2) favorable economic growth; 3)

the ongoing progress of economic and financial reforms; and especially 4) the likelihood of

better stability in the political climate after the election. However, the key challenge is the

banking system’s stability and quality over the longer term. Although we see ongoing progress

with Myanmar’s major economic and financial reforms, it will still take several years for the

country to be compliant with international practices. (For more details, see the Myanmar

Banking Sector report dated 9 Dec 2015).

Looking ahead, Myanmar’s economic prospects remain attractive on the back of the benefit

from reform implementation, including moving towards greater social and economic

liberalization under the administration of the new government, as well as high levels of

investment. The IMF expects the economy to grow 8.4% in 2016F from 2015E’s estimated 8.5%

reading (for more details on the economic outlook see our Myanmar report: "Progress toward

liberalization driving economic growth” from 23 Nov 2015).

Figure 26: Real GDP growth vs. credit growth Figure 27: Credit and deposits to GDP

5.6 7.3 8.4 8.5 8.5 8.4

25.1

5.1

24.628.8

34.730.3

60.1

50.5 52.535.5

45.236.7

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015E 2016E

Real GDP growth (%)

Domestic credit growth (%)

Credit to private sector growth (%)

7.5 10.313.7

16.1 19.221.7

16.2

24.6

30.232.5 35.1

37.5

46.544.2

48.4

55.1

60.865.7

0

10

20

30

40

50

60

70

2011 2012 2013 2014 2015E 2016E

Credit to private sector (% to GDP)

Deposits (% to GDP)

Credit to deposits (Loans to deposits) %

%

Source: IMF, Central Bank of Myanmar (CBM) Source: IMF, Central Bank of Myanmar (CBM)


Figure 28: Myanmar’s key banking statistics

Myanmar's key banking statistics 2011 2012 2013 2014 2015E 2016E

Real GDP growth (%) 5.6 7.3 8.4 8.5 8.5 8.4

Central bank rate (%) 11 10 10 10 ‐‐ ‐‐

Domestic credit (% YoY change) 25.1 5.1 24.6 28.8 34.7 30.3

Credit to private sector (% YoY change) 60.1 50.5 52.5 35.5 45.2 36.7

Credit to private sector (% to GDP) 7.5 10.3 13.7 16.1 19.2 21.7

Deposits (% to GDP) 16.2 24.6 30.2 32.5 35.1 37.5

Credit to deposits (Loans to deposits) % 46.5 44.2 48.4 55.1 60.8 65.7

Source: IMF’s forecasts, IMF‐World Bank Annual Meetings 2015, KT ZMICO Research

Figure 29: Key economic statistics 2011 2012 2013 2014 2015E 2016F

OutputGross domestic product, current prices MMK, bn 43,238 47,722 54,699 62,834 76,471 92,641

USD, bn 56 56 57 63 66 71Gross domestic product per capita, current prices USD 1,118 1,100 1,112 1,228 1,269 1,364Gross domestic product, constant prices % 5.6 7.3 8.4 8.7 8.5 8.4PricesInflation (avg.) % 2.8 2.8 5.7 5.9 12.2 11.8Inflation (end) % ‐1.1 4.7 6.3 7.4 13.3 10.2Public SectorTotal revenue MMK, bn 5,222 11,156 12,772 16,563 15,919 19,052

% GDP 12.1 23.4 23.4 26.4 20.8 20.6Total expenditure MMK, bn 7,208 11,955 13,732 18,405 19,582 23,379

% GDP 16.7 25.1 25.1 29.3 25.6 25.2government net lending/borrowing MMK, bn ‐1,986 ‐799 ‐960 ‐1,841 ‐3,664 ‐4,328

% GDP ‐4.6 ‐1.7 ‐1.8 ‐2.9 ‐4.8 ‐4.7Public debt % GDP 49 43 35 32 33 33 ‐ External % GDP 27 25 18 14 16 16 ‐ Domestic % GDP 23 18 17 17 18 17Balance of PaymentsVolume of exports of goods and services % 9.6 4.9 12.6 22.6 5.7 14.8Volume of exports of goods % 8.6 1.0 10.7 12.9 5.0 16.5Volume of imports of goods and services % 23.6 17.4 14.5 27.4 16.1 11.1Volume of imports of goods % 21.5 19.4 12.9 28.5 17.1 11.1Trade balance USD, bn ‐0.2 ‐0.3 ‐2.6 ‐5.2 ‐7.7 ‐7.9

% GDP ‐0.3 ‐3.8 ‐4.6 ‐8.2 ‐11.6 ‐11.1Current account balance USD, bn ‐1.1 ‐2.3 ‐3.0 ‐3.9 ‐5.9 ‐5.9

% GDP ‐1.9 ‐4.2 ‐5.2 ‐6.1 ‐8.9 ‐8.3International reserves USD, bn 0.9 3.1 4.5 5.1 5.1 5.4

Months of imports 0.8 2.4 2.8 2.8 2.5 2.3Money and CreditBroad money % 26.3 46.6 32.7 21.7 21.7 28.4Credit to private sector % 60.1 50.5 52.5 35.5 45.2 36.7

% GDP 7.5 10.3 13.7 16.1 19.2 21.7Deposits % GDP 16.2 24.6 30.2 32.5 35.1 37.5

FX & RateExchange rate (end) ‐ Official rate Kyat/$ 5.6 880 965 1,027 ‐‐ ‐‐ ‐ Market rate Kyat/$ 822 878 965 1,070 ‐‐ ‐‐Interest rate (end) ‐ Central bank rate % 12 10 10 10 ‐‐ ‐‐Other IndicatorsForeign direct investment % GDP 3.7 5.0 4.6 5.2 5.5 6.5Population Million 50.1 50.5 51.0 51.4 51.8 52.3Unemployment rate % 4.0 4.0 4.0 4.0 4.0 4.0

Source: IMF’s forecasts, IMF‐World Bank Annual Meetings 2015, KT ZMICO Research


Financial institutions in Myanmar

As of 22‐Aug‐16, Myanmar’s financial system comprised four state‐owned banks (SOBs), 24 private banks, 10 foreign bank branches, 48 representative offices of foreign banks, and 11 finance companies; see Figure 30‐31. A new microfinance bank was recently established and authorities are considering license applications for a housing bank and a livestock development bank. The 28 Myanmar banks have accumulated assets amounting to around 55% of GDP.

Private banks continue to gain a greater share over state‐owned banks (SOBs)

While state banks previously dominated the market, private banks have continued to gain a greater share and post stronger growth vs. SOBs, especially after the rapid growth in recent years. Assets owned by private banks now account for more than half of total system assets. The SOBs’ share of total banking sector assets continued to decline to 52% in Mar‐15 from 67% two years ago. Meanwhile, private banks’ share of banking sector assets has surged to 48% of system assets.

State‐Owned Banks (SOBs): Myanma Economic Bank (MEB), Myanma Foreign Trade Bank (MFTB), and Myanmar Agricultural Development Bank (MADB) were all established under the Socialist Union of Burma Bank Law in 1975, see Figure 31. A fourth state bank, the Myanma Investment and Commercial Bank (MICB), was set up in 1990 in order to stimulate the growth of industry and production in the country. MEB is the country‘s largest bank in terms of outreach, with a domestic banking network of over 310 branches across the country and the second largest deposit base (after Kanbawza Bank, a private bank). MADB is the largest state‐owned bank in terms of loans (as of 2012). MFTB specializes in international banking.

Semi‐governmental and private banks: The private banks, many of which were established after 1992, are dominated by five banks, namely Kanbawza Bank (35.4% of total private bank assets), Ayeyarwaddy Bank (11.3%), Co‐operative Bank (10.7%), Myawaddy Bank (7.3%), and Myanma Apex Bank (6.8%). These five banks collectively account for 72% of the total assets of private banks and 48% of the total deposits in the domestic banking system. In comparison to state‐owned banks, semi‐governmental and private banks play a leading role in terms of marketing campaigns and technological innovation (e.g., introduction of debit and credit cards and expansion of ATM networks).


Figure 30: Financial institutions in Myanmar

Private Banks State‐Owned Banks

1 Myanmar Citizens Bank Ltd 1 Myanma Foreign Trade Bank

2 First Private Bank Ltd 2 Myanma Investment and Commercial Bank

3 Co‐operative Bank Ltd 3 Myanma Economic Bank

4 Yadanabon Bank Ltd 4 Myanma Agriculture and Development Bank

5 Myawaddy Bank Ltd

6 Yangon City Bank Ltd Representative Offices of Foreign Banks and Finance Company

7 Yoma Bank Ltd 1 DBS Bank Limited

8 Myanmar Oriental Bank Ltd 2 National Bank Limited

9 Asia Yangon Bank Ltd 3 First Overseas Bank Limited

10 Tun Foundation Bank Ltd 4 CIMB Bank Berhad (New Licence for Name of Change)

11 Kanbawza Bank Ltd 5 Arab Bangladesh (AB)Bank Limited

12 Small & Medium Industrial Development Bank Ltd 6 Siam Commercial Bank Public Company Limited

13 Global Treasure Bank Ltd 7 Maruhan Japan Bank PLC

14 Rual Development Bank Ltd 8 Krung Thai Bank Public Company Limited

15 Innwa Bank Ltd 9 United Bank of India

16 Asia Green Development Bank Ltd 10 Kasikornbank Public Company Limited

17 Ayeyarwaddy Bank Ltd 11 Woori Bank

18 United Amara Bank Ltd 12 Vietin Bank

19 Myanma Apex Bank Ltd 13 Korea Development Bank

20 Naypyitaw Sibin Bank Limited 14 Standard Chartered Bank

21 Myanmar Microfinance Bank Limited 15 Shinhan Bank

22 Construction and Housing Development Bank Limited 16 Industrial Bank of Korea

23 Shwe Rural and Urban Development Bank Limited 17 First Commercial Bank (New Licence for Change of Management Office)

24 Ayeyarwaddy Farmers Development Bank Limited (A Bank) 18 E.SUN Commercial Bank, Singapore Branch

19 Bank of India (BOI)

Foreign Banks Branches 20 Kookmin Bank

1 The Bank of Tokyo‐Mitsubishi UFJ, Ltd 21 Export‐Import Bank of India

2 Oversea‐Chinese Banking Corporation Ltd 22 The Export‐Import Bank of Korea

3 Sumitomo Mitsui Banking Corporation 23 Eastern Bank Limited

4 United Overseas Bank Limited 24 Bank of Ayudhya Public Company Limited

5 Bangkok Bank Public Company Limited 25 RHB Bank Berhad

6 Industrial and Commercial Bank of China 26 Commercial Bank of Ceylon PLC

7 Malayan Banking Berhad (Maybank) 27 State Bank of India

8 Mizuho Bank Limited 28 Cathay United Bank

9 Australia and New Zeland Banking Group Limited 29 State Bank of Mauritius

10* The Joint Stock Commercial Bank for Investment and 30 BRED Banque Populaire

Development of Vietnam (BIDV) 31 Busan Bank Co., Ltd

11* Taiwan's E.SUN Commercial Bank 32 AEON Credit Service Company

12* South Korea's Shinhan Bank 33 PT. Bank Negara Indonesia (Persero)Tbk

13* The State Bank of India 34 Bank of Taiwan

*Note: Licenses granted on March 2016 35 Taishin International Bank Co., Ltd

36 Taiwan Shin Kong Commercial Bank Co., Ltd

Finance Companies 37 CTBC Bank Co., Ltd

1 Oriental Leasing Company Ltd 38 Yuanta Commercial Bank Co., Ltd

2 Myat Nan Yone Finance Company Ltd 39 Taiwan Cooperative Bank Limited

3 National Finance Company Ltd 40 Taiwan Business Bank Limited

4 Ryuji Finance Company Ltd 41 Mega International Commercial Bank Co., Ltd

5 Mahar Bawga Finance Company Ltd 42 Ho Chiminh City Development Joint Stock Commercial Bank

6 Jewel Spectrum Company Ltd 43 Qatar National Bank

7 Century Finance Company Ltd 44 Sampath Bank PLC

8 Win Progress Services Company Ltd 45 Bank of China

9 Z Corporation Company Ltd 46 KEB Hana Bank (New Licence for Change of Name)

10 Global Innovations Finance Company Ltd 47 BTMU Leasing (Thailand) Co., Ltd

11 Mother Finance Company Limited 48 ACLEDA Bank Plc.

Source: CBM, KT ZMICO Research


Figure 31: Financial institutions in Myanmar (as of 16 Mar‐16)

Source: YSX, CBM, KT ZMICO Research


Figure 32: Commercial bank lending by sector (% share) Figure 33: Banking sector liquidity (loans/deposits)

Source: IMF, Central Bank of Myanmar Source: IMF, Central Bank of Myanmar

Figure 34: Interest rates in Myanmar (%) Figure 35: Myanmar’s interest spread vs. regional banks

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Source: CBM, CEIC, IMF/IFS Source: CBM, World Bank, IMF

Upside risk/Downside risk The main potential downside risks to its profitability outlook could come from 1) regulatory

risk and accounting standard changes as Myanmar banks still have to comply with

international standards over the long term (see details in Earnings Prospects section); and 2)

asset quality risk given the bank’s rapid business expansion; and 3) the likelihood of more

intense competition in Myanmar’s banking system. Meanwhile, the main catalyst could

come from Myanmar’s favorable economic growth, which should continue to outpace

regional peers and help boost banking system growth.


Income Statement (Kyat mn) 2014 2015 2016 2017E 20187E 2019E

Fiscal year ended 31 March Mar‐14 Mar‐15 Mar‐16 Mar‐17 Mar‐18 Mar‐19

Total Interest Income 7,171 10,072 16,123 21,247 26,451 32,639

Total Interest Expenses 4,127 6,080 8,995 11,938 15,125 19,059

Net Interest Income 3,044 3,992 7,128 9,310 11,326 13,580

Commission on payment orders & remittances 658 1,128 1,474 1,842 2,211 2,543

Service income 610 804 1,381 1,865 2,331 2,797

Foreign Exchange Transaction 539 752 2,930 1,500 1,650 1,815

Other Income 966 1,569 18 27 31 35

Total Non‐Interest Income 2,773 4,253 5,803 5,234 6,223 7,190

Operating Income 5,817 8,245 12,931 14,544 17,549 20,770

Personal expenses 1,184 1,543 2,364 3,191 3,989 4,667

Expenditure for international banking 166 208 1,829 500 600 720

Other Expenses 1,116 1,386 1,643 2,111 2,460 2,855

Total Operating Expenses 2,467 3,138 5,835 5,802 7,049 8,242

Operating Profit 3,351 5,107 7,096 8,742 10,500 12,528

Extraordinary Items ‐ (55) ‐ ‐ ‐ ‐

Taxation 838 1,282 1,788 2,185 2,625 3,132

Net Profit 2,513 3,771 5,308 6,557 7,875 9,396

EPS (Kyat) 687.69 507.98 532.18 546.39 605.79 671.16

Balance Sheet (Kyat mn) 2014 2015 2016 2017E 20187E 2019E


Assets

Cash at bank 5,814 5,496 8,989 9,169 9,352 9,539

Cash with CBM and other banks 11,702 20,101 31,427 34,085 38,003 42,975

Net Investment 18,788 31,621 50,852 62,337 74,805 89,765

Loans 60,848 87,117 115,276 149,859 187,323 234,154

Net Loans 60,848 87,117 115,276 149,859 187,323 234,154

Premises and Equipment 3,832 5,311 8,056 11,682 14,018 16,121

Other Assets 4,312 14,558 15,212 17,131 17,788 18,707

Total Assets 105,297 164,204 229,813 284,262 341,289 411,262

Liabilities & Equity

Deposits 76,948 103,179 144,370 180,463 225,579 282,650

Other Liali l ities 5,473 16,126 23,976 27,523 30,399 33,667

Total Liabilities 82,422 119,305 168,346 207,986 255,978 316,317

Paid‐up Capital 18,271 37,113 49,870 60,000 65,000 70,000

Premium on Share Capital 113 2,886 4,799 6,319 7,069 7,819

Retained Earning 63 87 84 608 534 307

Other Equity Items 3,338 4,814 6,714 9,349 12,709 16,819

Total Shareholders' Equity 21,784 44,899 61,467 76,276 85,312 94,945 Source: MCB, KTZMICO Research


Valuation and Financial Ratios 2014 2015 2016 2017E 20187E 2019E


Per Share Data (Kyat)

EPS 688 508 532 546 606 671

DPS 650 650 650 382 424 470

BVPS 5,962 6,049 6,163 6,356 6,562 6,782

Multiplier

P/E (X) 8.72 11.81 11.27 10.98 9.90 8.94

P/BV (X) 1.01 0.99 0.97 0.94 0.91 0.88

Dividend yield (%) 10.83 10.83 10.83 6.37 7.07 7.83

Growth YoY (%)

Net Profit 39.2% 50.0% 40.8% 23.5% 20.1% 19.3%

EPS 36.1% ‐26.1% 4.8% 2.7% 10.9% 10.8%

Net Interest Income 5.9% 31.2% 78.5% 30.6% 21.7% 19.9%

Non Interest Income 177.3% 53.4% 36.4% ‐9.8% 18.9% 15.5%

Operating Income 50.1% 41.7% 56.8% 12.5% 20.7% 18.4%

Operating Profit 40.7% 52.4% 38.9% 23.2% 20.1% 19.3%

Loans 37.6% 43.2% 32.3% 30.0% 25.0% 25.0%

Deposits 38.1% 34.1% 39.9% 25.0% 25.0% 25.3%

Key Financial Ratios

Gross NPLs (Kyat mn) 852 1,922 2,374 3,427 4,738 6,612

Gross NPLs/Loans 1.4% 2.2% 2.1% 2.2% 2.4% 2.7%

Loan Loss Reserve/NPLs 142.9% 90.7% 97.1% 96.2% 98.8% 97.4%

Loan Loss Reserve/Loans 2.0% 2.0% 2.0% 2.2% 2.5% 2.8%

Provision/Total loans* 0.55% 0.60% 0.49% 0.66% 0.74% 0.75%

Capital & Liquidity Ratio

Capital Adequacy Ratio 54.4% 70.2% 73.5% NM NM NM

Loans to Deposits Ratio 79.1% 84.4% 79.8% 83.0% 83.0% 82.8%

Loans to Assets 57.8% 53.1% 50.2% 52.7% 54.9% 56.9%

Liquidity ratio 29.8% 32.7% 49.7% NM NM NM

Profitability Ratio

ROA 2.7% 2.8% 2.7% 2.6% 2.5% 2.5%

ROE 11.9% 11.3% 10.0% 9.5% 9.7% 10.4%

Cost to Income 42.4% 38.1% 45.1% 39.9% 40.2% 39.7%

Non Interest Income/Total Income 47.7% 51.6% 44.9% 36.0% 35.5% 34.6%

Net Interest Margin (NIM) 3.73% 3.47% 4.24% 4.20% 4.15% 4.07%

Tax rate 25.0% 25.4% 25.2% 25.0% 25.0% 25.0%

Key Assumptions 2014 2015 2016 2017E 20187E 2019E

Loan Growth‐ Net 37.6% 43.2% 32.3% 30.0% 25.0% 25.0%

Cost to Income 42.4% 38.1% 45.1% 39.9% 40.2% 39.7%

Net Interest Margin 3.73% 3.47% 4.24% 4.20% 4.15% 4.07%

Provision/Total loans* 0.55% 0.60% 0.49% 0.66% 0.74% 0.75%

Source: MCB, KTZMICO Research * Provision for loan loss is currently booked through the retained earnings item in shareholders’ equity


Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore,

prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully.

An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG.

A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY, M‐CHAI, CI,

EARTH. KT ZMICO is a co‐underwriter of ALT, EKH, RJH, BCPG.

Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD)

Excellent (scores: 90 ‐ 100) Satisfactory (scores: 60 – 69)

Very Good (scores: 80 – 89) Pass (scores: 50 – 59)

Good (scores: 70 – 79) No Logo N/A (scores: below 50) Anti‐corruption Progress Indicator

Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in

compliance with all relevant laws.

Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives

Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes

Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.)

Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases

Insufficient or not clearly defined policy

Data not available / no policy

DISCLAIMER

This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.

KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.

KT•ZMICO Securities Company Limited 8th, 15th-17th, 19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500

Telephone: (66-2) 695-5000 Fax. (66-2) 631-1709

Phaholyothin Branch 3rd Floor, Shinnawatra Tower II,

1291/1 Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66-2) 686-1500

Fax. (66-2) 686-1666

Ploenchit Branch 8th Floor, Ton Son Tower,

900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 626-6000

Fax. (66-2) 626-6111

Sindhorn Branch 2nd Floor, Sindhorn Tower 1, 130-132

Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 627-3550

Fax. (66-2) 627-3582, 627-3600

Viphavadee Branch G Floor, Lao Peng Nguan 1 Bldg.,

333 Soi Cheypuand, Viphavadee-Rangsit Road, Ladyao, Jatujak, Bangkok 10900

Telephone: (66-2) 618-8500 Fax. (66-2) 618-8569

Chachoengsao Branch 108/34-36 Mahajakkrapad Road,

T.Namuang, A.Muang, Chachoengsao 24000

Telephone: (038) 813-088 Fax. (038) 813-099

Chonburi Branch 4th Floor, Forum Plaza Bldg.,

870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287-635

Fax. (038) 287-637

Pattaya Branch 382/6-8 Moo 9, T. NongPrue,

A. Banglamung, Cholburi 20260 Telephone: (038) 362-420-9

Fax. (038) 362-430

Khon Kaen Branch 5th Floor, Charoen Thani Princess Hotel,

260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000

Telephone: (043) 389-171-193 Fax. (043) 389-209

Sriworajak Building Branch1st – 2nd Floor, Sriworajak Building, 222

Luang Road, Pomprab, Bankgok 10100

Telephone: (02) 689-3100 Fax. (02) 689-3199

Central World Branch 999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan,

Bangkok 10330 Telephone: (66-2) 673-5000,

(66-2) 264-5888 Fax. (66-2) 264-5899

Chiang Mai Branch 422/49 Changklan Road, Changklan

Subdistrict, Amphoe Meuang, Chiang Mai 50100

Telephone: (053) 270-072 Fax: (053) 272-618

Phuket Branch 22/61-63, Luang Por Wat Chalong Road,

Talat Yai, Mueang Phuket, Phuket 83000

Tel. (076) 222-811,(076) 222-683 Fax. (076) 222-861

Pak Chong Branch 173 175, Mittapap Road, Nong Sarai, Pak Chong,

Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574

Hat Yai Branch 200/301 Juldis Hatyai Plaza Floor 3,

Niphat-Uthit 3 Rd, Hatyai Songkhla 90110

Telephone: (074) 355-530-3 Fax: (074) 355-534

Phitsanulok Branch Krung Thai Bank, Singhawat Branch

114 Singhawat Road, Muang, Phitsanulok 65000 Telephone: 083-490-2873

Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our

views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in

securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are

made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.

Bangkhae Branch 6th Floor The Mall Group Building Bangkhae

275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160

Tel. (66-2) 454-9979 Fax. (66-2) 454-9970

Nakhon Ratchasima Branch 624/9 Changphuek Road, .

Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222

Fax: (044) 247171

Cyber Branch @ North Nana Krung Thai Bank PCL, 2 Floor,

North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua

Subdistrict , Wattana District, Bangkok 10110

Telephone: 083-490-2871

Nakhon Pathom Branch1156 Petchakasem Road, Sanamchan Subdistrict,

Amphoe Meuang , Nakhon Pathom Province 73000

Telephone: (034) 271300 Fax: (034) 271300 #100

myanmar citizens bank ltd. (mcb) - ktzrh · myanmar citizens bank ltd. (mcb) is a public bank...

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