Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

- Admittedly slash business goal in 2014
SCB had to review its business goal in 2014 after the performance in first two months
of the year was sluggish and the sluggishness tends to continue in 1H14. The bank
revised down its GDP growth forecast to 2.4% from 3.0%, under an assumption that
the political problem eases off in the next three months. However, if the turmoil
drags longer, there is a good chance that the bank will have to cut its business goal
again in the middle of the year. 2014 net loan growth target was slashed to 5-
7%yoy, close to the sector’s average of 6%yoy. This is the first time in several years
that SCB viewed that it would not be able to outperform the industry. Target growth
of non-interest income was also decreased to 7-10%yoy, mostly the growth from fee
income from financial advisory service for corporate clients rather than loan issuance.
The bank also raised its debt provisioning because of the uncertain economic
situation, increasing credit cost from 65-70bp to 80-85bp, with controllable NPL of 2-
2.3% of total loans. As a result, 2014 ROE forecast dropped from 19-21% to 17-
20%.
- Cut forecast. Previous assumption too optimistic
We revise down 2014-2015 SCB earnings forecast again respectively by 8.5% and
10.1% as the previous assumptions, despite already substantial cuts, were still too
high when compared with the bank’s recent target. We cut the net loan and fee
income growth forecast and increased credit cost to meet with SCB’s new target.
After the revision, 2014-2015 net profit growth is 3.9%yoy and 8.8%yoy,
respectively. Preliminarily, we project earnings in 1Q14 to weaken slightly from
B11.7bn in 4Q13. SCB did not face seasonally increasing expense in 4Q13 like other
banks, but fee income growth would drop from 5.6%qoq in 4Q13 because there has
not been income from big deals in this quarter.
- Switch to BBL
We reiterate to hold SCB for its dividend. 2014 fair value after the forecast revision,
at 2.11x PBV (GGM) is B172.30, under ROE forecast of 19.5%. If SCB can show the
equal growth to the sector’s while its PBV is substantially higher than 1.4x of the
sectors’, it would not be as attractive as BBL which has PBV of only 1.1x. We
recommend switching to BBL (FV@B197).