20140703-Maybank_KERPL-Healthy_NIM_from_low_funding_costs_11页_474kb

Siam Commercial Bank (SCB TB) Summary

Core Content

Siam Commercial Bank (SCB) is a leading bank in Thailand with a share price of THB173.50 and a target price of THB195.00, implying a 12% upside. The bank's market capitalization is THB588.9B, and its average daily trading volume is USD38M. SCB has been upgraded to a BUY rating with a revised target price, reflecting positive expectations for its performance in 2014 and 2015.

Key Financial Highlights

• Earnings Growth: SCB is expected to report a 10% YoY increase in 2Q14F net profit to THB14b, driven by a strong net interest margin (NIM), cost controls, and gains from the sale of its non-life insurance subsidiary.
• NIM Expectations: The NIM is projected to improve by 9bps QoY to 3.29% in 2Q14F, reflecting lower funding costs.
• Earnings Revisions: FY14F and FY15F earnings are raised by 3%, with expectations of THB54b and THB59b respectively.
• EPS Growth: Core EPS is expected to rise to THB16.0 in FY14F and THB17.5 in FY15F.
• Valuation Metrics:
  • 12x 2014PE
  • 2.3x P/BV
  • ROE of 20.6%

Main Viewpoints

• Strong Earnings Outlook: SCB's 2Q14F results are expected to be strong, with net profit reaching THB13.916b and EPS at THB4.09.
• Cost Management: The bank has effectively managed its operating expenses, maintaining a cost-to-income ratio of 35-36%.
• Credit Cost: Credit costs are expected to be 0.96% in 2Q14F, with provisions of THB1.5b set aside from the sale of the non-life insurance subsidiary.
• Loan Growth: Loan growth has been weak, at -0.6% YTD to May 2014, but the bank anticipates a recovery in 2H14, driven by corporate and consumer segments (mortgage and credit card).
• NIM Improvement: The NIM is expected to improve to 3.29% in 2Q14F due to lower deposit costs, with a target range of 3.1-3.3% for 2014.
• Dividend Yield: The net dividend yield is projected to increase to 3.3% in FY14F and 3.6% in FY15F.
• Book Value: Book value is expected to rise to THB82.75 in FY14F and THB94.03 in FY15F.
• P/E Re-rating: The stock is anticipated to re-rate to 11x 2014PE, with potential for a 0.5 s.d. increase above the mean level due to strong earnings.

Key Information

• Share Price Performance: Over the past 12 months, the stock has shown an absolute return of 3.3% and a relative return of 1.8% compared to the market index.
• Market Capitalization: SCB has a market cap of THB588.9B.
• Major Shareholders:
  • Thailand Bhumibol Adulyadej King: 23.7%
  • Krung Thai Asset Management: 23.2%
  • MFC Asset Management: 11.6%
• Free Float: 76.2%
• Issued Shares: 3,394 million
• ROE: 20.6%
• ROAA: 2.1%
• Operating Income: Expected to grow from THB102,983.4m in FY12A to THB164,275.1m in FY16E.
• Non-Interest Income: Expected to increase to THB68,460.4m in FY16E.
• Loan to Deposit Ratio: Projected to reach 100.4% in 2Q14F.
• Gross NPLs: Expected to increase slightly to 42,271m in 2Q14F, with NPL/loans ratio at 2.4%.
• CASA Ratio: Increased to 54% in 1Q14F from 49% in 4Q13F, reflecting a shift in deposit strategy.

Conclusion

SCB is expected to deliver strong earnings and a healthy NIM due to effective cost management and lower funding costs. The bank's strategy is focused on improving its fee and non-interest income, while also managing credit costs. With a revised target price of THB195, the stock is projected to re-rate based on its improved performance in 2014 and 2015, offering investors a potential upside.