The Siam Commercial Bank

The Siam Commercial Bank Plc (SCB)
- 3Q13 profit to shrink qoq. Core business steady
We project SCB’s 3Q13 net profit at B12.7bn, stabilizing qoq but surging 27%yoy. 1) Net
interest income growth in 3Q13 is anticipated at 2.6%qoq and 13.5%yoy, in line
with the projected net loan growth in 3Q13 at 3%qoq and 14.2%yoy. Overall, total net loan
in 9M13 would grow as much as 10% from end-2012, consistent with the bank’s target for
FY2013 at 12-15%yoy and our projection at 15%yoy. Growth is still foreseen from all types
of loan. While corporate loans would show lower growth, mostly short-term loans as
working capital for the agribusiness and tourism, SME loans would grow robustly until the
high season at the end of the year. For retail loans, housing loans would grow sturdily
against the industry’s recession and beating the industry’s growth; this situation is foreseen
in the next six to twelve months. For car hire-purchase loan, the growth would weaken,
particularly for used car loans, as the bank has decelerated the loan issuance to reduce
risks. NIM in 3Q13 would still stabilize at 3.12%. Although funding cost is anticipated to
increase as a result of the aggressive deposit raising since 2Q13, the yield would also rise
as benefiting from high-yield SME loans. 2) 3Q13 fee income growth is projected at
3.3%qoq and 19.1%yoy. The bank would book an income from financial advisory service
for CPALL, though not as much as expected, while the fee income from non-loan related
transactions such as credit card, fund selling, and bancassurance would not show significant
growth. 3) Income from other operations is projected to decline 1.1%qoq but still
grow 22.5%yoy in 3Q13, mainly because of a decrease in dividend income from equity
instrument portfolio, which still could not be negated by the dividend income of B260m
from Vayupak fund. The life insurance business, on the other hand, could still grow
continuously. Nevertheless, there are pressing factors in this quarter as follows. 1) Debt
provision is projected to shift slightly by 2.3%qoq and 35.3%. Credit cost would still
stand near 65bp like the prior quarter, in line with NPL (gross) to total loans ratio that
would stabilize qoq at 1.96%. 2) Operating expense is anticipated to grow by
3.9%qoq and 8.4%yoy. Nonetheless, overall, the bank has still projected the cost to
income ratio at only 38.69% in this quarter, which is substantially lower than FY2013 target
at 40-43% and the sector’s average at over 40%.
- Maintain forecast. Core business marching toward 2013 goal
We maintain our earnings forecast for FY2013-2014. Although 9M13 net profit would
already comprise 84% of our FY2013 net profit forecast, we project the operating expense
to grow at an accelerated rate in 4Q13 because of a high season. The bank still holds a
positive perspective toward aggressive growth of its core businesses in 2013, including
loans, NIM, and fee income, as well as better cost control and a strong asset quality with a
NPL of only 0.2% of the total loan. Despite foreseen economic deceleration in 2014, the
bank has still kept its target for higher growth than the industry, which would reflect
through better net profit growth above the sector’s average we have projected at
10.2%yoy (the sector’s profit growth in 2014 is projected at 9.8%yoy).
- Hold. Little upside left despite share price correction
We reiterate our recommendation of HOLD for SCB. Although the share price has
undergone correction substantially, there is only 13% upside left, while earnings in 4Q13
would weaken. 2013 fair value, based on 2.33x PBV (GGM) is B173.60, with ROE forecast
of 19.5%.