Siam Commercial Bank

Siam Commercial Bank Plc

4Q14 earnings were 20% below our number

SCB posted a 4Q14 profit of Bt12.23bn, up 4% YoY but down 8% QoQ. The result was 18% below our forecast and 8% short of the Bloomberg consensus, attributable to a slimmer NIM than assumed. The bank posted a 4Q14 NIM of 3.26% (we had expected 3.39%, close to the NIM for the previous quarter.) Pre-provisioning operating profit was Bt18.5bn, down by 3% YoY and 6% QoQ. FY14 earnings grew 6% YoY to Bt53.3bn, which represents 94% of our earlier FY14 projection.

Results highlights

Lending rose by 3.0% QoQ and 2.4% YoY, in line with our model. The corporate portfolio grew 4.9% QoQ, while mortgage and SME loans increased by 3.5% QoQ and 0.5% QoQ, respectively. But HP loans slipped by 2.2% QoQ and 11.4% YoY. 4Q14 NIM was 3.26%, down 13 bps QoQ but up 2 bps YoY. LLPs totaled Bt3.6bn, down 16% YoY but up 11% QoQ. The NPLs/loans ratio was 2.11% at YE14, unchanged QoQ. SCB’s loan loss cushion ratio declined slightly to 138.1% at YE14 from 140% three month earlier.

Net interest income (NII) was Bt20.5bn, up 8% YoY but down 2% QoQ, while net fee income was Bt11bn, down 1% YoY but up 7% QoQ. Non-NII dropped 12% YoY (but was up 5% QoQ) to Bt11.3bn, due to lower dividend income. The cost/income ratio rose to 42.3% in 4Q14 from 38.4% the previous quarter and 40.1% in 4Q13, as fee income declined in the face of OPEX expansion of 11% QoQ and 4% YoY to Bt13.3bn.

Outlook 

SCB should deliver slightly better YoY and QoQ earnings for 1Q15, assuming that lending growth continues and NIM doesn’t slip any further.

What’s changed?

We have cut our SCB loan growth assumptions from 9% to 7% for FY15 and from 8.5% to 8% for FY16. We have also raised our loan loss provisioning assumptions by 12% for FY15 to Bt14bn and by 16% for FY16 to Bt14.5bn. Hence, our profit forecasts decline by 7.6% for FY15 to Bt61bn and by 6.9% for FY16 to Bt67bn.

Recommendation 

As a result of our profit forecast cuts, we have trimmed our YE15 target price 4.3% to Bt214, pegged to an unchanged PBV of 2.25x. However, our BUY rating stands, premised on: 1) a fast earnings recovery once state infrastructure project spending and private investment start expanding in 2H15, 2) good asset quality management (an NPLs/loans ratio of only 2.1% with a high loan loss reserve of 138%) and 3) the highest projected FY15 ROE in the Bank sector of 20%.