Siam Commercial Bank

Siam Commercial Bank Plc

1Q14 earnings were 4.9% below our model
SCB posted a 1Q14 profit of Bt13.1bn, flat YoY, but up 12% QoQ. The result was 4.9% below our forecast but was 4.1% above the Bloomberg consensus. The bank reported lower fee income than we had expected of Bt11bn (we had modeled for Bt11.6bn). Pre-provisioning operating profit was Bt19.7bn, up by 8% YoY and 3% QoQ, driven by OPEX management. 1Q14 earnings represent 23% of our FY14 forecast.
Results highlights
Lending was flat QoQ but rose 8.8% YoY, in line with our model. The corporate portfolio led the expansion. Corporate loans grew by 1.9% QoQ and mortgages by 0.4% QoQ. But SME and HP loans dipped by 0.8% QoQ and 2.5% QoQ, respectively. NIM inched up 1 bps YoY but declined 1 bps QoQ to 3.15%. LLPs jumped 27% YoY but dived 24% QoQ to Bt3.2bn. The NPLs/loans ratio was 2.11% at end-March, unchanged QoQ. SCB’s loan loss cushion ratio dipped to 148% at end-March from 151% at YE13.
Net interest income (NII) grew by 12% YoY and 2% QoQ to Bt19.4bn, while net fee income rose 6% YoY but dipped 2% QoQ to Bt11bn (we had expected Bt11.6bn). Non-NII dropped by 4% YoY and 11% QoQ to Bt11.4bn (caused by lower dividend income and investment gains). The cost/income ratio fell to 36.4% in 1Q14 from 42.4% in 4Q13 and 37.2% in the same period last year, as OPEX increased only 2% YoY and fell 14% QoQ to Bt11bn.
Outlook
SCB should deliver flat YoY earnings for 2Q14, given slower lending growth, NIM erosion and slower fee income expansion.
What’s changed? 
Our FY14-15 profit forecasts stand unchanged for the moment at Bt56.5bn and Bt66bn, respectively.   
Recommendation
We have a BUY rating on SCB, premised on: 1) good asset quality management (an NPLs/loans ratio of only 2.1% with high loan loss cushion of 148%) and 2) a fast earnings recovery if the political chaos eases. Additionally, its CAR of 15.6% (12.2% Tier-1) is substantial enough to sustain its business expansion for the foreseeable future without need for a cash call.