The Siam Commercial Bank

The Siam Commercial Bank Plc (SCB)

1Q14 profit beats projection

SCB posted 1Q14 net profit of B13.1bn, making a new quarterly
high with the growth of 11.7%qoq, 12.5% above our projection
(stabilizing yoy). Operating expense dropped 13.8%qoq – better
than expected. Cost to income ratio decreased to 35.70%, the
lowest in three years, thanks to lower marketing expense after the
high season had passed and lower loss from repossessed car sales.
At the same time, net interest income rose 1.9%qoq – better than
expected. Although loan could barely grow in this quarter, resulting
in a 22bp decrease in yield, SCB’s major strategy of reducing
funding cost in 2014 (from the exceedingly higher level than peers
at present) by cutting high-rate fixed deposit and special deposit
campaigns helped maintain NIM at 3.16% as projected (despite
causing a 1.8% decrease in deposit though). In addition, debt
provision declined more than 24.5%qoq. Credit cost decreased to
74bp, better than expected and lower than the bank’s 2014 policy
rate of 80-85bp. In spite of slightly increasing NPLs, NPL to total
loan ratio lowered. All these positive factors could negate the
negative factors, which were 4.2% shrinkage in fee income – as
projected and lower loan-related fee income. Income from other
operations contracted 18.5%qoq because of lower investment profit
and Fx gain and flat growth of the insurance business.

- Weakness foreseen in 2Q14
We maintain our earnings forecast in 2014-2015, projecting the net
profit growth to slow down to 13.6%yoy and 10.8%yoy,
respectively, consistent with the bank’s more conservative policy.
Earnings in 2Q14 are anticipated to weaken qoq because debt
provision in 1Q14 was still lower than the policy level and other
operating expense has normalized since cost to income ratio was
still lower than the policy level of 38-40%.

- Take short-term profit from share price rising
We reiterate to hold SCB for dividend. However, as the share price
is likely to respond to the significantly better-than-expected 1Q14
earnings, this is also a good chance to take short-term profit. 2014
fair value, based on PBV (GGM) and 19.5% ROE, is B172.30,
implying insignificant upside now.