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Siam Commercial Bank

SCB to sell SCSMG to ACE Group

Siam Commercial Bank Plc (SCB)

What's new?

Yesterday, SCB announced that it would sell its 61percent stake in Siam Commercial Samaggi Insurance (SCSMG) to ACE Group for Bt3.75bn (Bt27.6/share). The bank plans to complete the deal within 2Q14. ACE Group is a global insurance and financial services firm based in the US; it already has a small commercial footprint in the Thai insurance market.

Expect a capital gain of Bt2.1bn if the deal is completed

SCB holds 135.85m shares in SCSMG, which is a non-life insurance company. At end-Sept 2013, its book value was Bt11.90/share. The implication is that SCB stands to realize a capital gain of Bt2.1bn (equal to about 3.6% of our SCB FY14 earnings forecast) from selling its SCSMG stake.

ACE Group would then be obligated to launch a tender offer for all the remaining outstanding shares in the insurance company.

Investment thesis

We have not factored the sale of the SCSMG holding into our model, so it means scope for upside to our net profit forecast. Regardless, we are confident in SCB's FY14 earnings outlook, premised on: 1) a strong loan growth profile, 2) efficiency improvements that have made for the lowest cost/income ratio in the sector, 3) good asset quality management (an NPLs/loans ratio of 2.1% with a loan loss coverage ratio of 152%) and 4) a high CAR of 15.9% (Tier-1 of 12.4%). Thus, our profit forecasts remain Bt50.7bn for FY13 and Bt60bn for FY14. We have a BUY rating on SCB.

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