Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

Q1 2013 earnings beat our estimate by 4.1%
SCB posted record earnings of Bt13.1bn for 1Q13, up by 26.8% YoY and 34.1% QoQ. The result was 4.1% above our estimate and 10.4% over the Bloomberg consensus. Pre-provisioning operating profit was Bt18.3bn, up by 28% YoY and 19% QoQ, driven by strong lending and fee income expansion and high dividend income of Bt1.4bn. 1Q13 earnings represent 26% of our FY13 forecast. 
Results highlights
Lending grew by 3.1% QoQ and 18.5% YoY,, in line with our estimate, driven by SME and retail business. Note that auto HP loans jumped 40.5% YoY, mortgages by 22.4% YoY, SME by 24.2% YoY. NIM fattened by 24 bps QoQ and 18 bps YoY to 3.39% in 1Q13, a little above our assumption of 3.25%. The NIM expansion was attributable to substantial dividend income of Bt1.4bn during the quarter and a greater proportion of SME and retail loans in the aggregate lending portfolio (the two categories both pay higher yields than corporate loans). SCB’s NPLs/loans ratio was 2.06%, down from 2.1% at YE12. The loan loss cushion rose to 160% at end-March from 145% three months earlier.
Net interest income (NII) increased by 22% YoY and 4% QoQ to Bt17.2bn, while net fee income rose 10% YoY (flat QoQ) to Bt10.3bn. Non-NII grew by 21% YoY and 11% QoQ, led by dividend income. The cost/income ratio dived to 39.3% in 1Q13 from 40.9% in the same period last year, as OPEX rose at a slower pace than NII. LLPs came to Bt2.5bn for 1Q13, up 74% YoY but down 29% QoQ.
Outlook
SCB should deliver strong YoY earnings growth for 2Q13, driven by aggressive lending, rising fee income, a sustained NIM and a lower headline corporate tax rate. Note that 1Q13 loan expansion of 18.5% YoY was much faster than the trend necessary for the bank to achieve its FY13 growth target range of 12-15% (we currently assume 15%).
What’s changed? 
Our FY13-14 SCB profit forecasts stand unchanged for the moment at 50.7bn and Bt61.8bn, respectively. If the bank sustains its current swift loan growth rate through 2Q13, we will revisit our model.  
Recommendation
We are bullish on SCB, premised on 1) a consensus-beating lending growth profile, 2) potential upside from fee income growth in the money and capital markets, 3) superior efficiency (the lowest cost/income ratio in the sector of 39%) and 4) good quality management—an NPLs/loans  ratio of only 2.06%. Additionally, its CAR is high at 16% (11% Tier-1), substantial enough for it to sustain robust lending expansion for some years without need for a cash call. Our BUY rating stands.