Siam Commercial Bank

Siam Commercial Bank Plc (SCB) 

 

- 1Q15 profit rebounds above projection despite extraordinary expense 

SCB announced 1Q15 net profit at B13.1bn, growing 7.5%qoq and 0.2%yoy, which is 5% better than expected, and accounting for 23% of FY2015 net profit forecast. Extraordinary expense of more than B1bn (net after tax) was booked in this quarter, mostly from compensation for KMITL embezzlement case; although the bank will get compensation claims from an insurance company, it has to follow a consideration procedure, which will take a while. Excluding such an item, normalized profit in the quarter was B17.8bn, growing as much as 13.1%qoq and 9.9%yoy, also better than expected, thanks to growing income from other operations, e.g. Fx gain and profit from a life insurance business through its subsidiary (SCBLife), and decreasing operating expense, especially other expense which turned out lower than projected. Net interest income showed flat growth from the prior quarter. NIM was slightly impacted as loan yield had decreased at a greater rate than funding cost, amidst better-than-expected net loan growth. Fee income declined due to lower corporate finance transactions. Bad debt provision expense rose 1.0%qoq and 12.3%yoy. Credit cost is still in line with the policy rate of 75-80bp and also in line with slightly increasing NPL (separated financial statement) in this quarter. However, NPL to total loans stayed at 2.09%, close to that of 4Q14. 

- Profit to improve further in 2Q15 

We maintain FY2015-2016 earnings forecast, projecting net profit to grow 5.4%yoy and 13.1%yoy, respectively; SME loans and fee income from financial advisory services for corporate clients are major driving factors. For 2Q15, SCB’s earnings tend to improve from the prior quarter, driven mainly by decreasing operating expense for there is no extraordinary expense, which will help reduced an effect from shrinking NIM after the recent policy rate cut. 

- Hold for dividend. We prefer KBANK 

We recommend only holding SCB for its dividend. 2015 fair value (GGM, based on PBV of 2.11x, and long-term ROE forecast of 18.5%) is B200. Although the share price now has more than 10% upside, we prefer KBANK, which has shown more aggressive business growth.