Siam Commercial Bank

Siam Commercial Bank Plc (SCB)
- 3Q13 profit stabilizes qoq as projected. Core business remains steady
SCB posted 3Q13 net profit at B12.7bn as expected, stabilizing qoq but surging
29.6%yoy. 1) Net interest income growth in 3Q13 stood at 5.3%qoq and
16.5%yoy, better than expected. Net loan growth in 3Q13 equated to only
1.7%qoq and 12.7%yoy – lower than expected, due to decelerated growth in
corporate loans as a result of repayment of short-term working capital loans for
agribusiness and tourism business. Small and medium SME and retail loans,
particularly housing, could show continuous growth. Overall, total net loan in 9M13
grew 8.6% from end-2012, still consistent with the bank’s target for FY2013 at 12-
15%yoy and our projection at 12%yoy. For car hire-purchase loan, the growth has
weakened as expected, particularly for used car loans as the bank has decelerated
the loan issuance to reduce risks. NIM in 3Q13 increased 10bp to 3.22% - better
than expected because funding cost decreased more than projected, in line with
deposit base that stayed flat qoq while yield rose as benefiting from the growth of
high-yield SME loans. 2) 3Q13 fee income grew 9.2%qoq and 25.9%yoy –
better than expected. In this quarter, the bank booked an income from financial
advisory service for CPALL, while the fee income from non-loan related transactions
such as credit card and brokerage business showed surprising growth. 3) Income
from other operations increased 15.7%qoq and 43.3%yoy – better than
expected, mainly a significant increase in dividend income from equity instrument
portfolio and the dividend income of B260m from Vayupak fund, while earnings from
the life insurance business could stay high from the previous quarter. The
abovementioned positive factors could offset all the following negative factors. 1)
Debt provision shifted 56%qoq and 106.1%yoy – substantially higher than
projected. Credit cost in 3Q13 stood at 100bp, rising from 65bp in the prior
quarter, whereas NPL (gross) to total loans ratio stabilized qoq at 1.98%, making
the coverage ratio increase. 2) Operating expense increased 9.5%qoq and
14.2%yoy – higher than projected, whereas cost to income ratio was low at only
38.45%, versus 38.69% in 2Q13, which is still lower than FY2013 target at 40-43%.
- Up forecast. Core business marching toward 2013 goal
We revise up our earnings forecast for FY2013-2014 by 6.1% and 7.2% from
previously as 9M13 net profit already makes up 84% of our existing FY2013 net
profit forecast. We have a positive perspective toward aggressive growth of the
bank’s core businesses in 2013, including loans, NIM, and fee income, as well as
better cost control and a strong asset quality with a NPL of only 0.2% of the total
loan. Despite foreseen economic deceleration in 2014, the bank has still kept its
target for higher growth than the industry, which would reflect through better net
profit growth above the sector’s average we have projected at 11.3%yoy (the
sector’s profit growth in 2014 is projected at 9.8%yoy).
- Hold. Insignificant upside from new fair value
We reiterate our recommendation of holding to receive dividend for SCB as the
share price has risen until there is only 8% upside left. After the forecast revision,
new 2013 fair value, based on 2.43x PBV (GGM) is B177.98, while 2014 fair value
under ROE forecast of 19.8% is B205.69.