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The Siam Commercial Bank

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The Siam Commercial Bank Plc (SCB)

1Q14 profit beats projection

SCB posted 1Q14 net profit of B13.1bn, making a new quarterly

high with the growth of 11.7%qoq, 12.5% above our projection

(stabilizing yoy). Operating expense dropped 13.8%qoq - better

than expected. Cost to income ratio decreased to 35.70%, the

lowest in three years, thanks to lower marketing expense after the

high season had passed and lower loss from repossessed car sales.

At the same time, net interest income rose 1.9%qoq - better than

expected. Although loan could barely grow in this quarter, resulting

in a 22bp decrease in yield, SCB's major strategy of reducing

funding cost in 2014 (from the exceedingly higher level than peers

at present) by cutting high-rate fixed deposit and special deposit

campaigns helped maintain NIM at 3.16% as projected (despite

causing a 1.8% decrease in deposit though). In addition, debt

provision declined more than 24.5%qoq. Credit cost decreased to

74bp, better than expected and lower than the bank's 2014 policy

rate of 80-85bp. In spite of slightly increasing NPLs, NPL to total

loan ratio lowered. All these positive factors could negate the

negative factors, which were 4.2percent shrinkage in fee income - as

projected and lower loan-related fee income. Income from other

operations contracted 18.5%qoq because of lower investment profit

and Fx gain and flat growth of the insurance business.

- Weakness foreseen in 2Q14

We maintain our earnings forecast in 2014-2015, projecting the net

profit growth to slow down to 13.6%yoy and 10.8%yoy,

respectively, consistent with the bank's more conservative policy.

Earnings in 2Q14 are anticipated to weaken qoq because debt

provision in 1Q14 was still lower than the policy level and other

operating expense has normalized since cost to income ratio was

still lower than the policy level of 38-40%.

- Take short-term profit from share price rising

We reiterate to hold SCB for dividend. However, as the share price

is likely to respond to the significantly better-than-expected 1Q14

earnings, this is also a good chance to take short-term profit. 2014

fair value, based on PBV (GGM) and 19.5% ROE, is B172.30,

implying insignificant upside now.

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