Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

Q2 2012 results in line with our model: SCB booked a Q2 2012 profit of Bt10.1bn, up 24% YoY but down 3% QoQ. The result was in line with our forecast and the consensus. Pre-provisioning operating profit was Bt14.5bn, up by 23% YoY and 1% QoQ, driven by strong loan and fee income growth. 1H12 earnings represent 49% of our FY12 projection. 
Results highlights: Lending expanded by 5% QoQ and 21% YoY, in line with our estimate. Disaggregated by category, retail loans rose by 7% QoQ, SME by 6.3% and corporate by 2.0%. NIM inched up 5 bps QoQ to 3.25% in 2Q12, above our assumption of 3.18%. The better NIM reflected increased SME and retail lending (both categories pay higher yields than corporate loans). The NPLs/loans ratio was 2.25% at end-June, down from 2.39% three months earlier. SCB’s loan loss cushion ratio increased to 140% from 132% at end-March.
Net interest income grew by 21% YoY and 7% QoQ to Bt15.2bn in Q2 2012, while fee income jumped 19% YoY (but slipped 5% QoQ) to Bt8.9bn. The cost/income ratio inched up to 41.8% from 40.9% the previous quarter, as OPEX outpaced fee income growth in 2Q12. 2Q12 LLPs came to Bt2.4bn, up by 184% YoY and 63% QoQ.
Outlook: SCB’s performance should strengthen further in 3Q12 on sustained lending growth and a well-managed NIM. The BOT’s soft funding scheme will augment loan expansion. 
What’s changed?  We maintain our FY12-13 profit forecasts unchanged for the moment at 42bn and Bt49.3bn, respectively.   
Recommendation: Having posted good 1H12 pre-provision operating profit growth of 23% YoY, SCB looks set to achieve our FY12 earnings forecast of Bt42bn. There is also scope for upside to our model—loan growth could exceed our estimate of 14% (as could NIM, if high-yield business growth were to expand faster than we assume). Our BUY rating stands. SCB is one of our top picks, premised on: 1) dynamic SME and retail lending growth, 2) a good capital base (CAR of 15.2%) and 3) the highest FY12 ROE in the sector of 19.4%.