Siam Commercial Bank

Siam Commercial Bank (Plc)

SCB’s earnings in 1H14 are strongest among big banks despite the
sluggish economy. Continued growth is foreseen in 2H14. FY2014
earnings forecast and fair value are revised up.

- 2Q14 profit substantially beats projection. Chance to control cost during crisis
SCB’s 2Q14 earnings were substantially better than expected. Net profit in
2Q14 was B14.7bn, making a new high for the second quarter against the
sluggish economy, or the growth of 12.1%qoq and 16.5%yoy. In this
quarter, the bank booked a one-time gain from sale of its share in Siam
Commercial Samaggi Insurance (SCSMG) in the amount of B1.3bn (net
after tax). Despite without said item, the bank’s core business remained
strong. Operating expense has increased but non-interest income also grew
significantly, so cost to income ratio dropped to 35.07%. Net interest
income was also greatly beyond projection in spite of flat net loan growth.
NIM rose 14bp from the previous quarter to 3.18%, more than projected,
thanks to decreasing funding cost from the bank’s strategy of aggressive
funding cost cut. Overall asset quality remained strong; an NPL increase of
B2.12bn to 2.07% of total loan was not so significant that worrying. Loss
provision in 2Q14 was close to that of 1Q14 – lower than expected. Credit
cost was 74bp, lower than 2014 policy rate of 80-85bp.
- Up forecast. Ready amidst economic growth
We revise up 2014-2015 earnings forecast respectively by 3.5% and 6.4%
because 1H14 net profit already accounts for 52% of the full-year forecast
while there is still a positive sign from the bank. 2014-2015 loss provision
estimate is reduced while 2015 net loan growth forecast is increased. After
the revision, 2014-2015 net profit growth forecast is 7.6%yoy and
11.9%yoy, respectively.
- Up 2014 fair value to B220
We recommend buying SCB and select it as a top pick of the sector. The
current share price provides total return of over 23% as 2014 fair value
after the forecast revision is B220 (from B193.45 previously), based on
2.69x PBV, GGM, under long-term ROE forecast of 21%.