The Siam Commercial Bank

The Siam Commercial Bank Plc (SCB)

Sole financial advisor for MAKRO acquisition by CPALL
CPALL bidding for MAKRO is considered as the largest ever takeover in the
Thai retail sector and also the biggest merger and acquisition (M&A) activity in
Asia so far this year. The deal’s value is US$6.6bn or B189bn, as shown in the
table on the next page. SCB has been appointed as the sole financial advisor
for the acquisition and also one of the lead arrangers and underwriters to seek
loans from both local and international financial institutions, such as HSBC,
Standard Chartered Bank, UBS AG, and SMBC, to finance the deal, mainly
international banks because 75% of the loan will be in US Dollar, 15% in Baht,
and the remaining 10% will come from CPALL’s cash flow. Each of these banks
has a policy to grant a bridge loan of around US$800m-1,000m or B28bn-
30bn with 1-year maturity and average loan rate for general good clients.
Subsequently, in the future, SCB would seek long-term source of capital to
refinance the loan in order to reduce risks and financial costs.
- Up 2013-2014’s forecast to reflect growing fee income
We have a positive outlook toward SCB’s aggressive business growth,
especially the fee income that is in line with the bank’s policy to increase its
role in the capital market by being a financial advisor for huge companies in
seeking various forms of fund raising. We increase our net profit forecast for
2013-2014 by 4.3% to reflect the up revision of fee income forecast in 2013
by around B1.5bn or 10.8% as a result of the FA deal with CPALL. Fee income
growth in 2013 and 2014 is estimated at 22%yoy and 14%yoy, respectively.
We maintain our net loan growth forecast for 2013-2014 at 15%yoy, which is
still in line with the bank’s assumption at 12-15%yoy. After the forecast
revision, net profit growth in 2013-2014 has increased 20.2%yoy and
13.6%yoy, respectively. In terms of concerns about a cluster of loan issuance
to a single big customer until exceeding the single lending limit of the BOT at
not over 25% of Tier-1 capital, SCB’s Tier-1 capital at end-1Q13 is B176bn or
11.26% of total risky assets, which means the bank will be able to grant loans
to an individual or group client at no over B44bn. The bank disclosed that it
has asked to increase the lending limit to 60% or B105bn, which would
facilitate the loan granting for the CP group, especially for the case of CPALL
that has massive cash flow each year and net cash position, which
substantially help alleviate the worry of the bank.
- BUY. New 2013’s FV is B214.65
We reiterate to buy SCB. The share price has substantially declined and
underperformed the sector, against the aggressive business growth. We view
this as a good opportunity for accumulation. New 2013’s fair value after the
forecast revision, using 2.85x PBV (GGM), is B214.65, versus the previous
B213, implying more than 16% from the current share price.