Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

Very surprising profit in Q1 2013. Loan strong, provision normal, with profit from subsidiaries
SCB announced Q1 2013’s net profit at B13.1bn, substantially exceeding our
projection of B10.9bn and growing 40.9%qoq and 30.8%yoy to make a new
quarterly high despite the business’ low season. A key supporting factor was
robust growth of the main business of the bank and its subsidiaries. 1) Net
interest income has grown 4%qoq and 21.6%yoy – as expected, due to
benefits from the net loan growth of 3%qoq and 18.2%yoy in the quarter, which
was in line with the bank’s target for FY2013 at 12-15%yoy and our projection at
15%yoy. Although corporate loans decreased slightly from the previous quarter
(-0.6%qoq and +0.67%yoy), impressive growth was seen from remaining types
of loans, including medium and small SME (+5.8%qoq and +24.2%yoy) and
retail that focuses mainly on new-car loans (+6%qoq and +40.5%yoy) and
housing loans (+6.4%qoq and +22.4%yoy). Meanwhile, liquidity management
was still in accordance with the policy, reflecting from gross loans to deposits
and borrowings of 94.9%, compared with the target of 94-96%. NIM in 1Q13
stabilized at around 3.11% despite a decrease of 16bp in yield in this quarter
because funding cost also declined substantially, which was still in line with our
forecast at 3.18%. 2) Fee income has thrived by 11%qoq and 18.3%yoy –
better than expected. Vigorous growth was seen from both loan and non-loan
transactions such as credit card and securities business. 3) Other income has
increased 13.9%qoq and 25%yoy – better than expected, mainly dividend
income from equity instrument portfolio and from Vayupak Fund, while net
income from insurance transactions after underwriting expense (via subsidiary)
was still greatly higher than our projection despite decreasing from the prior
quarter. 4) Debt provision in 1Q13 has plunged 29.1%qoq (but still
jumped 74.1%yoy) – as expected. Credit cost normalized to 63bp from 92bp
in the previous quarter, in line with NPL (gross) that has declined continuously to
2.06% from 2.13% of total loans at end-2012. Coverage ratio (LLR/NPL)
remained high at 144.8% at end-1Q13. 5) Operating expenses declined
8.9%qoq – better than expected. Cost to income ratio dropped to 36.63%
from 43.17% in the previous quarter.

Maintain forecast. Main business marching forward as targeted, benefiting ROE
We still maintain our earnings forecast for 2013-2014 even though 1Q13’s net
profit has already comprised 28% of our FY2013’s net profit forecast, because
the bank’s expenses are projected to increase at an accelerated rate in 2H13. We
hold our positive outlook for aggressive growth of the core business in 2013,
mainly from the growth of loans, especially the retail that is the bank’s strong
point, including car hire-purchase, housing, and personal loans. For SME, the
bank has insisted its policy of increasing market share of small SME that has
promising growth potential. In terms of fee and non-interest income growth, it
would be more aggressive in the rest of the year, including fee income from
retail loans, Bancassurance, profit from insurance business, and non-loan-related
transactions from SCB’s increasing role in the capital market in a form of a
financial advisor for capital raising of blue chip companies.

BUY. 2013’s EPS growth estimated at 17.5%yoy, with ROE of above 20%
We reiterate our BUY recommendation. The share price has substantially
corrected, so it is a good time to accumulate. 2013’s fair value, based on 2.85x
PBV, is B213, with high ROE of 20%.