The Siam Commercial Bank

The Siam Commercial Bank Plc (SCB)

Q3 2012’s profit touches B10bn as projected. Loan and NIM increase, provision decreases

SCB posted Q3 2012’s net profit at B10bn, quite stable qoq but growing
20%yoy. Although the net profit failed to make a new high (the peak was in
Q1 2011 at B13.0bn due to extraordinary profit), profit from operation still
stabilized close to the new high in the prior quarter at B11.9bn as a result of
following contributions. 1) Net interest income has thrived 6.7%qoq and
19.6%yoy – in line with our projection and the net loan growth of 5.3%qoq
and 19%yoy in this quarter. Consequently, overall net loan in 9M12 has
increased 14.6% from end-2011, in line with our target for FY2012’s net loan
growth of 20%yoy. The growth came from every type of loan including
corporate (+3.9%qoq and 13.1%yoy), small SME which gives high yield
(+4.4%qoq and 25.7%yoy), and retail especially car hire-purchase which has
grown notably following the prosperous auto industry (+12%qoq and
39.6%yoy) as well as housing, SCB’s strong point, that has still grown
robustly (+5.5%qoq and 20.7%yoy). 2) NIM has shifted 4bp in Q3 2012 to
3.21% as projected from the bank’s main focus on high yield loans which
helped offset rising funding cost in this quarter. 3) Debt provision expense
has dropped 14%qoq – better than expected. Although it was higher than the
policy level of B1.5bn/quarter, it is the bank’s policy to make high debt
provision if the profit is in an uptrend. NPL (gross) has increased by B1.65bn,
but compared with total loans that have enlarged substantially in this quarter
the NPL would decrease to 1.90% at end-3Q12 from 2% at end-Q2 2012 as a
result of qualitative reviews of 2-3 SME debtors. Overall, SCB’s net profit in
9M12 equated to B30.4bn, growing 3.1% from the same period last year.

Cut 2012-2013’s forecast due to fee income overestimation

We cut our profit forecast for FY2012-2013 respectively by 8%
and 7.1% in order to reflect our overestimation of fee income,
as shown in the table. However, despite the forecast cut, net
profit growth in 2012-2013 would still be seen at 8.8%yoy and
17.5%yoy respectively due to a support from net loan growth
which is projected continuously by 20%yoy each year. SCB’s
strong point is a high-yield retail loan which will benefit NIM
constantly. Meanwhile, corporate loan will also benefit from the
government’s mega investment projects in 2013 same as other
big banks.

Reiterate BUY. New fair value in 2013 is B213.42

We reiterate our recommendation to buy SCB as in the long run the share
price is marching for a re-rate of PBV to be close to that of key commercial
banks in top 3 countries, which are Indonesia, Malaysia, and the Philippines,
at already above 2x. Fair value in 2013, based on 2.89x PBV, is B213.42,
with average ROE of above 22%.