Siam Commercial Bank

Siam Commercial Bank Plc (SCB)
Q2 2013 profit contracts qoq. Fee income decreases, no TAMC money
Other core businesses grow
SCB posted 2Q13 net profit at B12.6bn, shrinking 3.6%qoq (but still growing 38.5%yoy),
8.8% lower than our projection because the bank did not book an extraordinary profit from
reversal of estimated loss on the impaired assets transferred to Thai Asset Management
Corporation (TAMC) at B1bn. Excluding this item, the bank’s earnings were still in line with
our forecast. The decline of the net profit in 2Q13 has resulted from following reasons. 1)
Fee income dropped 4.9%qoq (but still increasing 12.6%yoy) – worse than expected. The
bank recognized a low portion of income from a financial advisory deal with CPALL in this
quarter, while fee income from retail transactions such as credit card declined on seasonal
effect. 2) Income from other operations decreased more than 2.3%qoq (but still
rising 27.7%yoy) – worse than projected, mostly from a decrease in dividend income,
both from equity portfolio and Vayupak fund booked in 1Q13. Other income has also
decreased as a result of a decline in NPAs selling profits. Nevertheless, the life insurance
business could generate very surprising earnings, with an underwriting income net after
expense growing as much as 16.6%qoq. 3) Debt provision increased 6.7%qoq and
13.6%yoy – higher than projected. Credit cost stood at 65bp, slightly higher than the
normal level of 61bp. NPL (gross) has increased to B1.5bn in this quarter, but remained low
at 1.96% of total loans from 1.94% at end-1Q13. However, the core business has remained
strong. Net interest income in 2Q13 has grown by 3.9%qoq and 18.1%yoy – in line with
projection. With the net loan growth of 3.6%qoq and 16.8%yoy in 2Q13, 1H13 net loan
growth stood at 6.8% 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. Growth has been seen
from every type of loans, including corporate (though lower than SME and retail), medium
and small SME, and retail, especially housing and new car hire-purchase. NIM stabilized at
3.12%. Funding cost increased, but loan yield has grown at a more accelerated rate.
- Maintain forecast. Core business still marching to goal
We maintain our earnings forecast for FY2013-2014, projecting 1H13 net profit to comprise
53% of our FY2013 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 hire-purchase 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 non-interest 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 B214.65, with ROE of more than 20% on average.