Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

SCB raises loan, NIM, and ROE targets as 1H12’s earnings tend to exceed goal
SCB is still bullish that the overall business in 2H12 would still grow healthily
from 1H12 due to following contributions. 1) Net loan is projected to thrive
notably from every type of loan: corporate, SME, and retail. SCB still
maintains an ambitious goal for loan growth with its attempt to capture
larger market share in every business. For corporate loan, the bank still
focuses on big customers in order to increase fee income base from related
transactions such as cash management and trade financing. For SME loan the
bank focuses on penetrating into the market of small entrepreneurs which
give high loan yield. For retail loan, the bank has been still focusing on
increasing market share in the car hire-purchase and housing loans which are
its strong point. In addition, SCB has raised its total net loan growth target in
FY2012 to 17-19%yoy from only 12-14%yoy and in 1H12 the net loan has
already thrived by 9% from end-2011. 2) NIM is projected to stabilize from
1H12 at 3.2% due to a positive sign from loan yield that has been rising in
the past 1-2 years, especially yield from retail loans while funding cost has
increased at a slower rate. Consequently, the bank has raised its NIM target
in 2012 to 3.1-3.2% from 3%+. And 3) ROE has become more positive, in
line with the growth of core business. Accordingly, the bank has revised up
2012’s ROE target to 18-20% from 17-19%.

Increase assumptions for loan, NIM, and debt provision; only slight impact seen on forecast
 

We increase our key assumptions for earnings in 2012-2013 of the bank,
which are net loan and NIM in order to meet with the bank’s revised target
(as we have reported in our recent analysis report on 2Q12’s earnings of the
bank) as detailed in the table on the next page. However, we also increase
our forecast for debt provision in 2012-2013 from a normalized provisioning
at around B1.50bn/quarter. Credit cost is increased to 55bp from a
previously-projected-lower than 50bp, which is in line with the bank’s policy
revealed at the analyst meeting that debt provision would be raised in 2H12
on conservative method in order to deal with the economic volatility. Overall,
benefits from the raise of assumptions for net loan and NIM would
consequently be offset by an increase in debt provision. Accordingly, net
profit forecast for 2012-2013 would change only slightly by 0.7% and 0.6%
from the previous forecast respectively. Therefore, net profit in 2012-2013
would still grow by 18.3%yoy and 13.2%yoy respectively.
 

Reiterate BUY. Top pick in next 3 months
We reiterate to buy SCB and select it as a top pick of the sector (together
with KBANK) in the next 3 months. PBV of the stock should be re-rated to be
equal to leading regional commercial banks in 3 main countries, Indonesia,
Malaysia, and the Philippines which already have PBV of over 2x on average.
Fair value in 2012, using 2.89x PBV, is B185.60/share, implying
approximately 21% upside.