Siam Commercial Bank

Siam Commercial Bank Plc (SCB)  

 

 2Q15 profit to shrink from higher provision, flat core business 

 

We estimate 2Q15 net profit at B12.5bn, shrinking 4.8%qoq and 14.9%yoy; although extraordinary expense would decrease, versus B1bn net after tax booked in 1Q15, there are a number of negative factors in this quarter. Debt provision expense is projected to increase because the bank decided to raise its credit cost from 80bp in 1Q15 to 94bp in 2Q15 and revise up its 2015 credit cost target to 100bp from the policy credit cost rate of 75-80bp for NPL is growing above the estimate of 2.1-2.3% to 2.3-2.5% of total loans in 2015, mostly housing and SME loans; the bank also increased debt provision for special mention loan of SSI (the bank has already made provision for 36% of SSI’s total debts of B20bn). The core business likely has stayed flat from the prior quarter, including net interest income, fee income, and income from other operations. Overall, 1H15 net profit is estimated at B25.6bn, decreasing 7.8% from the same period last year and making up only 47% of our FY2015 forecast. 

 

 Forecast cut from worse outlook towards economy and business 

 

Since SCB’s business target has changed to the slower and more conservative, we revise down our net profit forecast in 2015-2016 respectively by 7.9% and 10.7% to reflect projections for decreasing net loan growth, fee income, and income from other operations. Debt provision and credit cost forecast is also revised up, as shown in the table. According to a new forecast, SCB’s net profit is projected to decrease 5.5%yoy in 2015 but grow 9.7%yoy in 2016 from the low base and the hope toward improving economy. 

 

 New fair value still implies limited upside 

 

Only hold for dividend is recommended for SCB since the share price still has a limited upside when compared with a new 2015 fair value after the forecast revision of B165 (GGM, based on 1.77x PBV and long-term ROE forecast of 17.5% (previously 18.8%)), versus B180 earlier.