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Siam Commercial Bank (SCB TB) Summary

Core Information

• Share Price: THB156.00
• Target Price: THB158.00 (+1.3%)
• Market Cap (USD): $16.7B
• Average Daily Trading Value (USD): $31M
• Country: Thailand
• Sector: Banks
• Rating: HOLD (Unchanged)

Key Assumptions and Outlook

• GDP Growth: Revised down to 2.4% from 3.0% for 2014, assuming a functional government is established by 1H14.
• Earnings Growth: Expected to grow by 5% YoY in 2014, driven by strategies such as lowering deposit costs, increasing Non-NII from commercial segments, and slowing OPEX growth.
• Loan Growth: Revised to 6-8% for 2014 and 8-10% for 2015, down from previous assumptions of 7-10% and 12-15%.
• Credit Costs: Increased to 80-85bps in 2014, up from 83bps in 2013, due to a weak economic outlook and prolonged political conflict.
• Earnings (THBbn): Revised to THB52.8bn (EPS: THB15.5), up 5% YoY.
• NIM: Revised up by 3bps to 3.17% in 2014, supported by lower deposit costs and the impact of the interest rate cut.

Strategic Focus

SCB is focusing on cost management during the slow economic growth. Its four strategic plans to drive earnings growth are:

1. Deposit Cost Reduction: Replacing expensive deposits with low-cost CASA (Current and Savings Account) to lower the cost of funds.
2. Fee Income and Non-NII Growth: Building up fee income and Non-NII from business loans.
3. OPEX Control: Managing operating expenses effectively.
4. Relationship Manager Capabilities: Improving the skills of relationship managers to enhance performance.

Financial Metrics

Key Data

• 52-Week High/Low (THB): 199.5 / 130.5
• Free Float (%): 69.9
• Issued Shares (m): 3,394
• Market Capitalization: THB536.3B
• Major Shareholders:
  • Vayupak Fund I: 23%
  • Crown Property Bureau: 21%
  • Capital Group Companies: 8%

Share Price Performance

Comparison with Maybank

Loan and Deposit Growth

• Loan Growth: Negative in 1Q14 due to political uncertainty.
• Deposit Growth: Negative 2.5% YTD in February 2014.
• New NPL Formation: Increased during the weak economy, especially in SME and auto loans.

NIM and Earnings Impact

• NIM: Revised to 3.17% in 2014, up 3bps from previous assumptions.
• Net Impact on NIM: Positive by 2bps from the interest rate cut.
• Estimated Change in Rates:
  • MLR: -12.5bps
  • MRR: 0.0bps
  • Savings Deposit Rate: -12.5bps
  • Fixed Deposit Rate: -5.0bps

Analysis of Funding Costs

• SCB has significant room to cut deposit costs, with 45bps higher deposit costs compared to the average of the other three large banks.
• The bank is expected to stop offering special deposit rates to large depositors to lower funding costs.

Earnings and TP Revision

• Earnings Revised Down: 2% to THB52.8bn (EPS: THB15.5), up 5% YoY.
• Target Price Revised: To THB158 (from THB160), based on 1.9x 2014 PBV and 10x PER with 20% ROE.
• Preferred Banks: KBANK and KTB over SCB due to concerns over credit quality and weak retail loan growth.

Conclusion

SCB faces a challenging macroeconomic environment, with revised assumptions and a bearish outlook for 1H14. The bank is adjusting its strategies to manage costs and maintain earnings growth through Non-NII and deposit cost reductions. Despite the negative loan growth and increased credit costs, the bank is expected to maintain a modest earnings growth. The revised target price reflects the adjusted outlook and the bank's ability to manage costs effectively. However, the report recommends caution and prefers other banks due to concerns over credit quality and weak retail loan growth.