Siam Commercial Bank
Results in line with model BUY (maintained) Target Price: Bt148.00 Price (19/01/12): Bt119.50
Siam Commercial Bank Plc (SCB)
Profit in line with our model: SCB booked 4Q11 earnings of Bt6.7bn, up 12% YoY but down 20% QoQ. The result was in line our estimate and 6% below the consensus. Pre-provision operating profit was Bt11.2bn, up 16% YoY (but down 21% QoQ), driven by a fatter YoY NIM and good YoY loan growth. FY11 earnings jumped 50% YoY to Bt36.3bn, equal to 99.5% of our projection.
Results highlights: Loans expanded 4.3% QoQ, a little above our estimate. Disaggregated by category, 4Q11 lending grew 4.4% QoQ for corporate, 5.8% and 3.4% for retail. NIM dipped 9 bps QoQ to 3.27%, in line with our estimate, which reflects increased corporate and SME loan expansion (the two categories pay lower yields than retail business). The NPLs/loans ratio was 2.61% at YE11, down from 2.69% at end-Sept. The loan loss coverage ratio rose to 127% at YE11 from 119% at end-Sept.
SCB’s net interest income (NII) grew by 29% YoY but dipped 1% QoQ to Bt13.5bn in 4Q11, while fee income fell 14% QoQ but was up 5% YoY to Bt7.7bn. The cost/income ratio rose to 49.8% in 4Q11 from 49.2% in the same period last year, as OPEX increased by 22% YoY (and 13% QoQ), due mainly to the impact of the flooding. SCB’s 4Q11 LLPs rose by a substantial 128% YoY and 64% QoQ to Bt3.1bn for the same reason.
Outlook & model adjustments: The bank faces stiffer competition for business and higher costs (the BOT will levy fees from all banks in 2H12 to service FIDF debt). We, thus, have cut our FY12-13 NIM assumptions by 20 bps and 40 bps, respectively, to 3.0% and 3.1% (but we have raised our FY12 and FY13 loan growth forecasts by 10% and 8%, respectively, from 8% and 7% formerly). As such, we have revised down our FY12 earnings projection by 8% to Bt38.5bn and our FY13 number by 11% to Bt43.5bn.
Recommendation: Given our profit forecast cuts, our SCB YE12 target price declines 11% to Bt148, pegged to a justified PBV of 2.2x. Our BUY rating stands. SCB is one of our two top Bank sector picks, premised on dynamic SME and corporate lending growth, fast core earnings growth of 29% this year and an impressive FY12 ROE of 17.2%.
