Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

Q4 2012 earnings good, as expected
SCB booked a 4Q12 profit of Bt9.8bn, up 45% YoY but down 2% QoQ. The result was in line with our estimate and the Bloomberg consensus. Pre-provisioning operating profit was Bt15.4bn, by up 38% YoY and 2% QoQ, driven by lending and fee income expansion. FY12 earnings rose 11% YoY to Bt40.2bn, which represents 100% of our FY12 earnings projection. 
Results highlights
Lending expanded by 3.9% QoQ and 20.1% YoY, in line with our estimate. Disaggregated by category, retail loans rose 5.2% QoQ, SME by 5.9% and corporate by 1.5%. NIM declined 12 bps QoQ to 3.15% in 4Q12, slightly below our assumption of 3.18%. The NIM erosion was attributable a greater proportion of SME and corporate loans in the aggregate portfolio (the two categories both pay lower yields than retail loans). The NPLs/loans ratio was 2.1% at YE12, close to the end-Sept 2012 number. SCB’s loan loss cushion ratio rose to 145% from 135% three months earlier.
Net interest income (NII) grew by 23% YoY and 2% QoQ to Bt16.6bn, while fee income shot up by 34% YoY and 19% QoQ to Bt10.4bn. The cost/income ratio inched up to 44.1% in 4Q12 from 43.6% in 3Q12, as OPEX outpaced net interest income growth (NII). LLPs came to Bt3.6bn for 4Q12, up by 16% YoY and 75% QoQ.
Outlook
SCB should deliver strong earnings growth for 1Q13, both QoQ and YoY, driven by lending and fee income and a lower corporate tax rate. Given its FY12 lending expansion performance of 20.1% YoY (SCB’s FY12 target range was only 17-19%), the bank may possibly also exceed its FY13 loan growth target range of 12-15% (we currently assume 15%).  
What’s changed? 
We maintain our FY13-14 profit forecasts unchanged for the moment at 50.7bn and Bt61.8bn, respectively.   
Recommendation
Our FY13 earnings forecast is Bt50.7bn and we expect ROE of 20% (the bank guides for an FY13 ROE range of 19-22%), which we are confident is achievable. Moreover, in the event of an economic downturn, the bank should prove resilient—it has a high loan loss coverage ratio of 145% with a low NPLs/loans ratio of 2.13%. Its CAR is 15.7% (10.6% Tier-1), substantial enough for it to sustain robust lending growth for some years without need for a cash call. Our BUY rating stands.