Siam Commercial Bank

Good business momentum in 4Q14 BUY

Siam Commercial Bank Plc (SCB)

- 3Q14 profit drops as expected due to lower extraordinary revenue

SCB posted 3Q14 net profit at B13.2bn, as estimated, or a fall of 10.0%qoq

but a rise of 4.2%yoy; over B1.3bn extraordinary revenue from sales of

investment in SCSMG (SCB holding 60.86% of total paid-up shares) booked

in 2Q14 was no longer recognized in 3Q14. Excluding the extraordinary

item, profit from SCB's core business has remained strong, in line with the

bank's strategy of lowering funding cost closer to peers and strictly

controlling operating cost, reflecting from net interest income growth, NIM,

and cost to income ratio that are in line with projection. Bad debt

provisioning has stabilized from the prior quarter due to strong asset

quality; NPL to total loans ratio stayed flat from 2Q14 at 2.07%.

- Continuous positive signs in 4Q14

We maintain our FY2014-2015 earnings forecast; net profit is estimated to

grow 7.6%yoy in 2014 and 11.9%yoy 2015. SCB projects Thailand’s

FY2015 GDP growth at 4.5-5.0%yoy, rising remarkably from low GDP

growth base in 2014. Government and private investments are projected to

grow, especially SMEs in many sectors that run supply chain business. 4Q14

earnings are projected to continue improving from 3Q14 owing to high

season for loans. Higher fee income would negate increasing operating cost

and bad debt provision expense in 4Q14.

- Laggard banking stock

We reiterate BUY. SCB is a laggard big-cap banking stock with a total return

of over 31%. Fair value (GGM, 2.69x PBV, 21% long-term ROE) is B220 in

2014 and B251.10 in 2015.