Siam Commercial Bank
Higher LLP, but lower tax rate
Buy; Bt119.50
Price Target : Bt128.00; SCB TB
4Q11 results was in line; higher-than-expected LLP was offset with lower tax rate
2012 loan growth to be slower at 9% vs 22% in FY11
Maintain BUY and Bt128.0 TP
Comment on Results
4Q11 net profit dropped 19% qoq to Bt6.74bn (EPS: Bt2.03) and pre-provisioning profit was 21% lower qoq – in line. However, SCB set higher-than-expected LLP of Bt3.1bn vs. Bt1.87bn in 3Q11, as a prudent step to cushion any future deterioration to loan quality. The effective tax rate was lower at 18% in 4Q11 vs. 31% in 3Q11 because of reversal of general LLP to specific LLP. NIM narrowed by 19 bps to 3.14% due to higher cost of funds from re-pricing of fixed deposits. Fee income contracted 17% due to the floods while net insurance premium dropped 27% due to higher non-life insurance expenses as a result of claims related to the floods. Operating costs rose 13% qoq due to higher marketing and promotion expenses and 10% higher personnel expenses. Hence, cost-to-income ratio rose to 49% vs. 40% in 3Q11.
SCB posted higher loan growth of 4.3% qoq (+22.1% yoy), led by corporate loans (+4.4%), SME loans (+5.8%) and hire purchase loans (+2.4%), below our expectations. Gross NPL fell 3% qoq to Bt36bn, and hence, NPL coverage ratio rose to 127% in 4Q11 vs. 119% in 3Q11.
Recommendation
Maintain BUY. In 2012, SCB intends to be selective in lending activities, targeting only companies with healthy financials and strong expansion potential given the potentially weaker global economy. Hence, we are forecasting loan growth of 9% for FY12F, slower than 22% in FY11.
