Siam Commercial Bank

Siam Commercial Bank Plc (SCB)

3Q12’s profit to grow 8.6%qoq. Loan growth foreseen in every sector especially auto
We project SCB’s net profit in 3Q12 at B10.9bn, growing 8.6%qoq and 31%yoy. Although the projected net profit is not a new high (the peak was in 1Q11 at B13.0bn due to extraordinary profit), profit from operation is anticipated to make a new high at B12.9bn in this quarter due to following reasons. 1) Net loan growth in 3Q12 is estimated at 5.5%qoq and 19.1%yoy. Consequently, total net loan in 9M12 would thrive 14.7% from end-2011, inline with the target for FY2012’s net loan growth of 20%yoy. The growth would come from every type of loan including corporate (to emphasize on expanding fee income base for related transactions such as cash management and trade financing), SME (focusing on small SMEs which give high yield), and retail especially
car hire-purchase which has grown notably following the prosperous auto industry and housing, SCB’s strong point, that has still grown robustly. 2) NIM is projected to shift 6bp in 3Q12 to 3.23% from the bank’s main focus on high yield loans. 3) Cost to income ratio is anticipated to stay flat from the previous quarter at 40% (it usually peaks in 4Q) 4) There would be dividend income from
Vayupak fund for 1H12 at 3% of investment or B400m in this quarter. 5) Debt provision in this quarter would stabilize at B2.5bn, up 5.7% qoq, which is higher than the policy level of B1.5bn/quarter. However, it is the bank’s policy to raise the debt provision if the profit is in an uptrend.

Maintain forecast. 2012’s profit to make new high as expected
We maintain our profit forecast for FY2012-2013, projecting earnings in 9M12 to comprise 74% of our net profit forecast for FY2012. In addition, earnings in 4Q12 are foreseen to stay in a positive side. In spite of an increase of operating expenses during the high season, interest income from loan is also in a high season, especially for SME and retail, as well as fee income. Accordingly, net profit growth in 2012-2013 is estimated at 18.3%yoy and 13.2%yoy respectively.

Reiterate BUY. High chance to outperform market due to remarkable profit
We reiterate our recommendation to buy SCB as the share price is marching for a re-rate of PBV to be close to that of key commercial banks in top 3 countries, which are Indonesia, Malaysia, and the Philippines, at already above 2x. Fair value in 2012, based on 2.89x PBV, is B185.60 and in 2013 is B218.20, with average ROE of as high as 20.8% and 21.6% respectively.