Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

- 2014 business to decelerate along with economy, but still keep ROE target high
SCB’s management revealed the vision for 2014 with a more cautious business
strategy than 2013 amidst the current economic deceleration that has resulted from
both local and international pressing factors. FY2014 net loan growth is targeted at 7-
10%yoy, versus 12-15%yoy in FY2013, which is in line with FY2014 GDP growth of
the market that has been gradually cut (no forecast from SCB reported), but still
lower than FY2014 net loan growth we projected at 12%yoy. SCB is hopeful that
demands for SME loans would grow better than contracting demands for corporate
and retail loans (car leasing and housing). The bank views that the net loan growth in
2014 is not a key target to measure the KPI and will instead focus on generating
profit in order to keep ROE high at 19-22% with a strategy of cost reduction and
control, including both interest expense (to be lower than rivals’) and operating cost
(to be strict about cost to income ratio target in 2014 at 39-41%). Moreover, SCB
would also boost the growth of fee income, especially that relating to SME and
corporate loans which still have room to grow further despite not as remarkably as in
2013.
- 4Q13 profit to weaken qoq. Loan to meet target but expense and provision rise
We estimate 4Q13 net profit at B12.1bn, softening 4.2%qoq but still growing strongly
21.7%yoy. 1) Net interest income is projected to grow 1.1%qoq and
15.0%yoy, in line with the net loan growth forecast in 4Q13 of 3.2%qoq and
12.0%yoy, thanks to SME and housing loans that have grown at a more accelerated
rate this quarter. NIM is projected to contract 4bp to 3.18% as a result of the loan
rate cut. 2) Fee income is projected to stay flat qoq but grow 16.0%yoy. The
bank is going to book an advisory income from TRUEGIF deal in this quarter, while
fee income from non-loan related transactions such as credit card and bancassurance
would grow robustly on the seasonal effect. 3) Other operating income is
anticipated to decline 4.1%qoq but still increase 23.4%yoy, mainly because
dividend income from equity portfolios has decreased while there would not be a
dividend income from Vayupak fund in this quarter. However, although there would
be a profit of B800m from selling of investment in Vayupak fund in this quarter, the
bank would use the money for making additional debt provision. Accordingly, credit
cost would decrease from 100bp to 83bp in 4Q13. NPL (gross) to total loans at end-
2013 would still be in line with the target of 2%. 4) Operating expense in 4Q13 is
projected to grow 9.3%qoq and 14.0%yoy. Cost to income ratio would increase
to 42.11% from 38.45% in the previous quarter. We revise our FY2013-2015
earnings forecast slightly as shown in the table on the next page in order to reflect
the changes in the targets.
- Reiterate HOLD. Cut 2014 fair value to B182.83, implying little upside
We reiterate to hold SCB to receive dividend. Although the share price has
substantially undergone correction, the upside is little when compared with new
FY2014 fair value at B182.83, from B204.53 previously (GGM, at new PBV of 2.17x
from 2.43x). ROE is expected at 19.8%, while there is no new supporting factor due
to the sluggish industry’s outlook .under ROE forecast of 19.8% is B205.69.