The Siam Commercial Bank

The Siam Commercial Bank Plc (SCB)

- 4Q13 profit weakens qoq. Loan meets target but expense and provision increase
SCB posted 4Q13 net profit at B11.7bn, 3% worse than our projection, or a decline of
7.6%qoq (growing 26.3%yoy though) due to the following reasons. 1) Other
operating income dropped 10.3%qoq, but still growing 15.5%yoy, mainly
because dividend income from equity portfolios has decreased while there was not a
dividend income from Vayupak fund in this quarter. Moreover, although there was a
profit of B1.4bn from selling of investment in Vayupak fund, the bank used the
money for making additional debt provision. Credit cost in 4Q13 remained high at
98bp, close to that of the previous quarter. However, NPL (gross) to total loans at
end-2013 shifted to 2.06%, exceeding the bank’s target of 2% as a result of, as SCB
explained, debt quality classification for some debtors and the economic slowdown.
2) Operating expense in 4Q13 increased 3.3%qoq and 7.7%yoy. Cost to
income ratio rose to 40.00% from 38.45%. On the other hand, there were still
positive factors even though they could not negate effects from the aforementioned
negative factors. 1) Net interest income grew 0.8%qoq and 14.7%yoy – lower
than projected though, in line with net loan growth that was recorded at 3.3%qoq
and 12.1%yoy, thanks to accelerated growth in SME and housing loans in this
quarter, whereas corporate loans remained sluggish. Car leasing loans decelerated as
projected, especially for repossessed cars as the bank has slowed down the loan
issuance to reduce risks. NIM in 4Q13 contracted 6bp to 3.16% - slightly worse than
expected as funding cost decreased at a slower rate than loan yield as a result of the
RP-1 day rate cut. 2) Fee income grew 5.0%qoq and 21.7%yoy. In this quarter
the bank booked an advisory income from TRUEGIF deal, while fee income from nonloan
related transactions such as credit card and bancassurance still grew robustly on
the seasonal effect. Overall, FY2013 net profit was B50.2bn, escalating 24.9%yoy
and making the year’s high.
- Maintain forecast. 2014 business to decelerate along with peers
We maintain our forecast for FY2014-2015, projecting the net loan growth at a slower
rate of 13.6%yoy and 10.8%yoy, respectively, in line with SCB’s more cautious
strategy amidst Thailand’s economic downturn as impacted by both local and
international factors. Net loan growth in 2014 is estimated at 7-10%, down from 12-
15%yoy target in 2013, consistent with our FY2014 GDP growth forecast that has
been slashed to 3.3%. We project 2014 net loan growth at only 8%yoy, driven
mainly by SME loans that are still of higher demands when compared with corporate
and retail loans (car leasing and housing). Moreover, SCB has cost to income ratio at
only 39-41%, relatively lower than peers, while fee income, particularly that relating
to SME and corporate loans, would continue growing, though not as remarkably as in
2013.
- Hold to receive dividend. Switch to BBL, KBANK
We reiterate to hold SCB to receive dividend. Although the share price has
substantially undergone correction, compared with new FY2014 fair value at B181.50
(GGM, at PBV of 2.17x and long-term ROE expected at 19.8%), its 2014 PBV is still
higher than BBL and KBANK’s, which have also undergone correction, and the current
share price is still lower than PBV in the past ten years. We, therefore, recommend
switching to BBL and KBANK, which have lower PBV and more attractive dividend
yield of 4-5% p.a.