Siam Commercial Bank
Not perfect but good enough OUTPERFORM - Maintained Share price: Bt159.50 Target price: Bt187.00
Siam Commercial Bank Plc (SCB)
Lagging behind its peers in terms of growth and profitability is unacceptable for SCB, which has raised its FY12 loan growth target to 18%. But this could come with higher credit costs, particularly if global macro headwinds blow stronger. Net-net, we believe management will continue to keep a rewarding balance between risks and returns, supporting further ROE expansion and our outperform rating.
Our target is still set at 3x FY12 P/BV (GGM; 17.5% ROE, 11.7% COE, 8.7% growth).
What Happened
During the 2Q12 results briefing, SCB’s CEO and CFO told analysts that the bank’s FY12 loan growth target has been raised from 12-14% to 17-19% (CIMB: 18%). Growth in 1H was 9.4%, led by car (+22%), SME (+14%) and mortgage (+12%) lending. The focus for the corporate segment
will remain on fee income, not volume growth. The targeted SME borrowers are the smaller SMEs. For auto loans, the emphasis in 2H will be on the used-car segment, which offers a higher yield.
NIM widened 8bp in 1H12, thanks to higher loan yields, which rose across the board. Wholesale yields rose 4bp to 5.18% while SME yields gained 25bp to 7.19% due to an increased focus on smaller SMEs. Retail yields went up 37bp to 6.88%, driven by mortgage lending.Citing prudence, SCB hiked its loan loss provision to THB2.4bn in 2Q12, above the guided THB1.5bn/quarter.
Provisions are likely to stay above the guided level in 2H12 though management refused to quantify.The outlook is upbeat for bancassurance under 95%-owned SCBLIF which enjoyed net insurance income growth of 54% in 1H12.
What We Think
SCB should continue to reap the benefits of strong retail lending. Another boost could come from
bancassurance, which contributes 9% of total operating income vs. 6% a year ago. On the cost side, our forecast builds in THB2bn/quarter provisions in 2H12. Its excess loan loss reserve of THB15.6bn should also provide some cushion in times of asset quality deterioration.
What you should do
KBANK is our preferred pick among the big banks, followed by SCB.
