Siam Commercial Bank
Q3 2012 profit slightly below our number, due to a higher effective tax rate
3Q12 earnings were 3.7% below our figure
SCB booked a 3Q12 profit of Bt10bn, up 20% YoY but down 0.5% QoQ. The result was 3.7% short of our forecast and 4.6% below the Bloomberg consensus, attributable to a higher effective tax rate than expected of 24% (our estimate was 22%). Pre-provisioning operating profit was Bt15.1bn, up by 6% YoY and 4% QoQ, driven by loan growth and good NIM management. 9M12 earnings rose 3.1% YoY to Bt30.4bn, which represents 70% of our FY12 earnings projection.
Results highlights
Lending expanded by 5.4% QoQ and 15.6% YTD, in line with our estimate. Disaggregated by category, retail loans rose by 7.2% QoQ, SME by 4.4% and corporate by 3.9%. NIM inched up 2 bps QoQ to 3.27% in 3Q12, above our assumption of 3.18%. The better NIM was attributable a greater proportion of SME and retail loans (both categories pay higher yields than corporate loans). The NPLs/loans ratio was 2.1% at end-September, down from 2.3% three months earlier. SCB’s loan loss cushion ratio dipped to 134.9% from 140.2% at end-June.
Net interest income grew by 20% YoY and 7% QoQ to Bt16.2bn in 3Q12, while fee income slipped by 4% YoY and 2% QoQ to Bt8.7bn. The cost/income ratio inched up to 43.6% from 41.8% the previous quarter, as OPEX outpaced fee income growth in 3Q12. LLPs came to Bt2.0bn, up 9% YoY (but down 14% QoQ).
Outlook
SCB’s performance should strengthen further in 4Q12 on sustained lending growth and a well-managed NIM. Given strong 9M12 lending expansion of 15.6% YTD, we see scope for upside to the bank’s publicly stated FY12 lending growth target range of 14-19% (we currently model for 19%).
What’s changed?
We maintain our FY12-13 profit forecasts unchanged for the moment at 43.6bn and Bt52bn, respectively.
Recommendation
Having posted a good 9M12 pre-provision operating profit growth of 17% YoY, SCB looks set to achieve our FY12 earnings forecast of Bt43.6bn. Moreover, in the event of an economic slowdown the bank should prove resilient—it has a high loan loss coverage ratio of 135% with a low NPLs/loans ratio of 2.1%. Our BUY rating stands, premised on: 1) dynamic SME and retail lending growth, 2) a big capital base (CAR of 17.5% with 11.5% Tier-1) and 3) the highest FY12 ROE in the sector of 20%.
