Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

Q2 2013’s profit to make new high. Loans strong; reversal of TAMC debt provision

SCB’s Q2 2013 net profit is estimated at B13.8bn, still marching to make a new quarterly
high with the growth of 5.6%qoq and 37.5%yoy due mainly to the core business. 1) Net
interest income in 2Q13 is projected to grow by 4%qoq and 18.2%yoy. With the
net loan growth of 2.5%qoq and 15.5%yoy in 2Q13, we estimate 1H13’s net loan growth
at 5.6% from end-2012, which is in line with the bank’s net loan growth target for FY2013
at 12-15%yoy and our projection at 15%yoy. Corporate loans would likely stay quite flat
in 1H13 because some of the clients turned to bond issuance during the market openings
as a source of capital (low interest rate). However, according to SCB, the liquidity would
become tighter from now, so the clients would have to depend more on commercial banks
because they will not be able to raise capital with low interest rate like before. For small
and medium SME and retail loans, especially housing and new car hire-purchase,
magnificent growth is still foreseen. NIM in 2Q13 would still stabilize at 3.11%. 2) 2Q13’s
fee income growth is projected at 6.8%qoq and 26.5%yoy. Robust growth is
foreseen from both loan transactions (income from a deal of a financial advisory for CPALL
was booked slightly in this quarter, but will increase in 3Q13) and non-loan transactions
such as credit card and securities business. 3) Income from other operations is
projected to grow as much as 10.5%qoq and 44.5%yoy in this quarter, mainly
because the bank booked a reversal of debt provision previously transferred to TAMC
(estimated at around B0.8-1.0bn. 4) Debt provision expense in 2Q13 is anticipated
to stay close to that of the prior quarter. Credit cost would still stand near the political
level of 61bp, in line with NPL (gross) that has remained low close to 2% of total loans at
end-2Q13. However, despite accelerated growth of more than 4.8%qoq and 12.8%yoy in
the operating expense in this quarter, cost to income ratio is still able to stabilize at
36.2% because the more accelerated growth in the income.
-Maintain forecast. Core business still marching to goal
We maintain our earnings forecast for FY2013-2014, projecting 1H13’s net profit to
comprise 56% of FY2013’s net profit forecast. Operating expense would grow at an
accelerated rate in 2H13 because of a high season. The bank still holds a positive
perspective toward aggressive growth of its core business in 2013, from its emphasis on
retail loans, which are the bank strength, especially housing and personal. Car hirepurchase
loans, on the other hand, would show slower growth compared with the
unusually high growth in the previous quarters. For SME loans, the bank would focus on
increasing market share of small SMEs that still have high growth potential. Fee and noninterest
income would also grow more aggressively in the rest of the year, including retail
loans, Bancassurance, profit from insurance business, and non-loan-related fee income from SCB’s increasing role in the capital market in a form of a financial advisor for blue
chip companies in their capital raising, especially CPALL deal, which would be booked as
income more in 3Q13.
-Reiterate “BUY”. Share price undergoes correction, good time to accumulate.
We reiterate our recommendation of “BUY” for SCB. As the share price has undergone
correction substantially, it is a good time to accumulate. 2013’s fair value, based on 2.85x
PBV (GGM) is B213, with ROE of more than 20% on average.