Siam Commercial Bank

Siam Commercial Bank Plc (SCB)
 

12% over our model: SCB booked a 1Q12 profit of Bt10.3bn, up 54% QoQ but down 21% YoY. The result beat our forecast and the market by 12%, attributable to a fatter NIM and a lower effective tax rate (21.2%; we expected 24.5%) than modeled. Pre-provision operating profit was Bt14.3bn, up by 22% YoY and 29% QoQ, driven by NIM and fee income. 1Q12 earnings represent 26% of our FY12 projection. 
Results highlights: Loans expanded 4% QoQ, in line with our estimate. During 1Q12, corporate lending rose 2.2% QoQ, followed by SME up 7.0% QoQ and retail up 5.5% QoQ. NIM dipped 6 bps QoQ to 3.21%, which still exceeded our assumption of 3.12%. NIM was buoyed by the fact that high-yield SME and retail business expanded much faster than corporate loans. The NPLs/loans ratio was 2.39% at end-March 1Q12, down from 2.61% at YE11. SCB’s loan loss cushion ratio rose to 131% at end-March from 127% at YE11.
Net interest income (NII) grew by 29% YoY and 5% QoQ to Bt14.2bn in 1Q12, while fee income jumped by 21% QoQ and 14% YoY to Bt9.4bn. The cost/income ratio dipped to 40.9% in 1Q12 from 41.3% in the same period last year, due to the good NIM. The bank set Bt1.4bn in LLPs, up 70% YoY.
Outlook: We expect SCB to report further bottom-line growth for 2Q12, led lending (mostly SME and retail) and a sustained NIM. The BOT’s soft funding program will augment business expansion. 
What’s changed?  The bank’s consensus-beating 1Q12 earnings performance suggests scope for upside to our FY12 forecast. But for the moment, we maintain our FY12 and FY13 profit forecasts unchanged at 40.5bn and Bt46.5bn, respectively.   
Recommendation: Our BUY rating stands. SCB is one of our two stop picks in the sector, based on: 1) dynamic SME and corporate loan growth (we expect corporate lending to accelerate in 2H12), 2) a good capital base (CAR of 15.6%), and 3) the highest FY12 ROE of any of the big-five banks of 17.9%.