The Siam Commercial Bank

The Siam Commercial Bank Plc (SCB)

Q1 2013 profit growth projected at 12.2% QoQ due to vigorous loans, strong NIM and normal provision
SCB’s 1Q13 net profit is estimated at B10.9bn. Despite low season, 1Q13 net
profit would hit the quarterly record high with the growth of 12.2% QoQ and 6%
YoY due to the following supports. 1) The net interest income in 1Q13 is
projected to grow by 5.3% QoQ and 23.2% YoY, which is in line with our
forecast of 1Q13 net loan growth of 4.5% QoQ and 19.8% YoY. This is
substantially high compared with the bank’s FY2013 loan growth target of 12-
15% YoY and our projection of 15% YoY, mainly from the growth of small SME
loans (B20-50m) and retail loans, which are new car loans that have grown
vigorously (as evident in approximately 700,000 units of car waiting to be
transferred since 2012), property loans and personal loans that have also
thrived. However, corporate loans haven’t exhibited outstanding growth.
Accordingly, 1Q13 NIM is still projected to rise slightly by 2bp to 3.14% along
with increased yield of those high-yield loans. For the funding cost, it has been
quite stable in this quarter, which is still in line with the bank’s target of 3.1-
3.2%. 2) The fee income in 1Q13 is projected to grow by 1.9% QoQ and
8.6% YoY due to both Bancassurance and credit cards. For FX gain (noninterest
income), it also has grown considerably. 3) Debt provision expense in
1Q13 is projected to decrease by 31.7% QoQ (still rising by 67.7% YoY). The
credit cost is estimated to decline to the normal level of 60bp from 92bp of the
prior quarter. The bank has assured at there wouldn’t be additional debt
provision from the given policy rate, in line with NPL that still has stabilized in
this quarter. On top of that, the coverage ratio (LLR/NPL) is considered
substantially high with 150% at end-2012. 4) The operating expense in 1Q13
is projected to decrease by 3.6% QoQ (still rising by 19% YoY) which is
ordinary since 1Q13 wasn’t a high season. Cost to income ratio is estimated to
decline to 41.42% from 43.17% of the past quarter. These factors are beneficial
for 1Q13 net profit growth forecast, considered 24% of expected FY2013 profit
forecast.
Main business to grow as targeted, boosting ROE to almost 20%
SCB still has maintained an aggressive perspective for the business growth in
2013. For the growth of loans, the banks still has aimed at retail loans (42% of
total loans) which are the bank’s strong point. This type of loans consists of car
hire-purchase loans, property loans, and personal loans. For SME loans, SCB still
has remained insistent with the policy to increase the market share in small
SMEs which still have further growth potential. For fee income and non-interest
income, they tend to grow even more aggressively during the rest of the year.
Apart from the growth of fee income in retail loans, Bancassurance, and profit
from insurance business, there’s also non-loan-related fee income since SCB has
played more role in the capital market as a financial advisor for corporate
companies. This business involves providing advices regarding capital raising by
bond issuance, property fund, and infrastructure fund. The bank aims to get
continuous growth for this business with not less than 12-14% YoY.
Recommend “BUY”… 2013 EPS projected to grow 17.5% YoY with 22% ROE
We reiterate our recommendation of “BUY” for SCB, believing that the share
price would be re-rated to be close to PBV of leading banks in 3 regional
countries, which are Indonesia, Malaysia, and the Philippines, at above 2x on
average. 2013 fair value, using 2.85x PBV (GGM), stands at B213 with average
ROE higher than 20%.