Siam Commercial Bank

Profit to tumble due to lower extraordinary revenue BUY

Siam Commercial Bank Plc (SCB)

- 3Q14 profit to drop due to lower extraordinary revenue

We project SCB's 3Q14 net profit at B13.2bn, falling 10.0%qoq but rising

4.1%yoy; B1.3bn extraordinary revenue from sales of investment in SCSMG

(SCB holding 60.86% of total paid-up shares) booked in 2Q14 would no

longer be recognized in 3Q14. Excluding the extraordinary item, profit from

SCB's core business is anticipated to remain strong, in line with the bank's

strategy of lowering funding cost closer to peers (possibly increasing 3Q14

NIM) and strictly controlling operating cost. However, operating cost is

projected to increase by 2.4%qoq (but dropping 2.6%yoy). Nevertheless,

non-interest income is projected to fall by 26.1%qoq and 27.5%yoy as the

extraordinary revenue would not be booked in 3Q14. Therefore, cost to

income ratio is expected to increase to 37.48%.

- Positive signal for 4Q14

We maintain our FY2014-2015 earnings forecast; net profit is estimated to

grow 7.6%yoy in 2014 and 11.9%yoy 2015. SCB projects FY2015 GDP

growth at 4.5-5.0%yoy, rising remarkably from low GDP growth base 2014.

Government and private investments are projected to grow, especially SMEs

in many sectors that run supply chain business. 4Q14 earnings are

projected to continue improving from 3Q14 owing to high season for loans.

Higher fee income would negate increasing operating cost and debt

provision expense in 4Q14.

- Laggard banking stock

We reiterate BUY. SCB is a laggard banking stock with the total return of

over 22%. FY2014 fair value (GGM, 2.69x PBV, 21% long-term ROE) is

B220.