Siam Commercial Bank

FY 2013 loan growth target raised to 15%

Siam Commercial Bank Plc (SCB)

Investment thesis

We have expanded expectations for SCB's FY13 lending growth; it targets growth of 12-15percent for this year. In order to fine-tune for this hefty lending outlook, we have revised up our FY13 and FY14 lending assumptions to 15% and 13%, respectively, from 12% and 12%. Thus, our profit forecasts rise by 3.5% to Bt50.7bn for FY13 and by 3% to Bt61.8bn for FY14. The higher FY13 bottom-line projection prompted us to increase our YE13 target price by 4% to Bt219, pegged to a justified YE13 PBV of 2.9x. Our BUY rating stands.

SCB bullish about its 4Q12 numbers and FY13 outlook

11M12 lending expansion was 20.6% YTD, far above the trend necessary for the bank to achieve its FY12 loan growth target range of 17-19%. The retail and SME categories led 4Q12 business. Thus, we are confident that our FY12 lending expansion estimate of 19% will be surpassed. SCB targets FY13 loan growth in the range of 12-15%. The lending focuses are the retail and SME categories (higher lending yields than corporate business). Likewise, its non-interest income (NII) is set to rise by 12-14%, in line with loan growth. We, thus, have revised up our FY13 loan growth forecast to 15percent from 12%.

FY12-13 NIM targets of 3.1-3.2%

Given a stable interest rate trend and anticipation of further loan growth, SCB now expects both FY12 and FY13 NIMs of 3.1-3.2% (NIM was 3.2% in FY11). Intense competition for deposit mobilization and price-led competition are the main threats to NIM sustainability. Our FY12 and FY13 NIM forecasts are 3.1% and 3.2%, respectively. Note that management expects the one-day Repurchase Rate to fall to 2.25% by YE13 from 2.75% at the moment.

FY13 loan loss provisions of Bt8-10bn

Although SCB already has a high loan loss coverage ratio of 135% and a low NPLs/loans ratio of 2.1%, it guides that loan loss provisioning will rise slightly in tandem with strong lending growth. The bank plans to set bigger LLPs in the range of Bt8bn-10bn (at least 60 bps of total lending in FY12 and FY13). We assume LLPs of Bt8.3bn for FY12 and FY13. The bank has set a YE13 NPLs/loans ratio target of below 2%.

Bullish FY13 ROE guidance of 19-22%

Management has revised up its FY12 ROE target range guidance to 18-20percent from 17-19%. The bank also announced a high FY13 ROE target of 19-22% (the highest among the big banks), to be achieved as the result of a well-managed NIM, strong loan growth and good OPEX control. As such, SCB cut its FY12 cost\income ratio guidance to 42-43percent from 43-44%. The bank aims for an FY13 cost\income ratio of 40-42%. Note that we forecast FY12 and FY13 cost/income ratios of 43.8% and 42.6%, respectively.