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Siam Commercial Bank

Aggressive rebound foreseen

Siam Commercial Bank Plc (SCB)

We expect SCB's 1H14 earnings result to be stronger than peers

despite the slowing economy. We are confident that SCB will

strengthen significantly in 2H14 along with the economic rebound


- Strong profit foreseen in 2Q14. Chance to reduce cost

We project SCB’s 2Q14 net profit at B13.2bn, growing 1.1%qoq and

4.9%yoy. Although SCB would recognize B1.47bn extraordinary profit (net

after tax) from selling of investment in SCSMG, it is expected to be used as

allowance for bad debt. Currently, 1Q14 credit cost has been as low as 74bp

(FY2014 target is 80-85bp). Excluding the extraordinary item, SCB’s

normalized profit would still grow strongly, in line with the bank's business

strategy in 2014. SCB has aimed to lower funding cost (to reduce its cost to

the same level of other banks) and strictly control expenses amidst the

slowing economy. Operating expense is expected to stay unchanged qoq,

but non-interest income is likely to grow significantly. Thus, we project cost

to income ratio to drop to 34.86%.

- Maintain forecast. Rebound expected in 2H14

We maintain SCB’s FY2014 earnings forecast. 1H14 net profit is expected to

make up 50% of the FY2014 net profit forecast. As the economy would

improve in 2H14, SCB would rebound as well. Corporate loan, housing loan,

credit card loan and personal loan are expected to grow, boosting FY2014

net loan growth beyond our target of 6%yoy.expected in 1H14). Overall, we

might revise up FY2014 earnings forecast.

- Sector’s top pick. Buy during economic rebound

We recommend BUY. SCB is the sector’s top pick, given its total return of

over 15.20%. FY2014 fair value (GGM, 2.37x PBV, 20.5% long-term ROE

forecast) is B193.45.


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