Siam Commercial Bank

Siam Commercial Bank Plc (SCB)
Investment thesis: We remain bullish on SCB’s FY12 lending growth profile, due to stronger 1Q12
loan growth than modeled (4.5% YTD). Our FY12 and FY13 loan growth projections were 10% and
8%. In order to fine-tune for the strong lending growth performance, we have revised up our FY12
and FY13 assumptions to 14% and 12%, respectively, and upgraded our FY12 and FY13
profit forecasts by 3.7% and 7.6%, respectively, to Bt42bn and Bt49.3bn. Our higher FY12 earnings forecast has prompted us to increase our YE12 target price 10% to Bt168, pegged to a justified YE12 PBV of 2.6x. BUY!
Reiterate FY12 loan growth target of 12-14%:Following loan growth 4.5% QoQ and 20% YoY,
SCB guided for an FY12 lending expansion target range of 12-15%. The SME and retail categories
and the BOT’s soft funding scheme will make further strong contributions in 2Q12. As noted above, we have revised up our FY12 lending growth target to 14% from 10% formerly.
NIM guidance of 3-3.2%: SCB says it expects a stable interest rate trend and good loan growth, so
guides for an FY12 NIM range of 3-3.2% (its NIM was 3.2% last year). Competition for deposit
mobilization might bring on some NIM squeeze, but the BOT’s 0.47% levy on deposits, B/Es and shorttenor debentures will have only a negligible effect, as SCB’s funding is dominated by deposits (it had to pay a 0.4% deposit insurance fee to the BOT last year). Our FY12 NIM forecast is 3.1%.
Normalized LLPs: Assuming no cataclysmic events ahead, SCB will set normal LLPs of Bt1.5bn a
quarter, or Bt6bn for FY12, down from Bt6.7bn in FY11. Its NPLs/loans ratio was 2.39% at end-March, below its YE12 target at 2.50%.Maintain cost/income target at 43-44%: SCB
guides for an FY12 cost/income ratio target of 43-44%, the lowest in the sector. Given lower CAPEX and rising fee income, we expect a ratio of 42% for FY12, down from 43% last year. Note that its 1Q12 cost/income ratio was 41%.

Outlook
New FY12 loan growth forecast of 14%: Management maintains its FY12 loan growth
target range at 12-14% after strong lending expansion of 22% last year. The bank
achieved 1Q12 loan growth of 4.5% QoQ and 20% YoY. Note that SCB’s SME lending
grew 7% YTD, followed by retail loans at 5.5% and corporate business at 2.2%. As such,
our earlier FY12 loan growth projection of 10% YoY looks too conservative. We have,
therefore, revised up our FY12 loan growth projection to 14% (the upper bound of SCB’s
guidance, mentioned above). Management guides that 2Q12 lending growth momentum
will be sustained, driven by a retail recovery (mostly HP business), BOT soft funding of
Bt33bn for the bank, big-ticket corporate loan draw-downs and SME business expansion.
Its capital adequacy ratio was 15.6% (Tier-1: 10.7%) at end-March, more than sufficient to
for several years of business expansion without need for capital-raising.
Fee income expansion: In tandem with 4.5% QoQ loan growth for 1Q12, SCB’s fee
income (net fee and service income and gains from FX and bancassurance sales) for the
period grew 14.4% YoY, led by bancassurance and FX gains on trading finance. The bank
believes that fee-based income will expand further in 2Q12 onward. Management says
FY12 fee income growth might exceed the current target of 15%. Note that our model still
assumes FY12 fee income expansion of 15%, in line with the bank’s guidance.