Siam Commercial Bank (SCB TB)

Transcription

1 HOLD (Unchanged) TP: Bt (From: Bt ) 16 JANUARY 2015 Change in Numbers Downside : -0.3% Siam Commercial Bank (SCB TB) In transition SCB has had a change in top management, who are encountering tough tasks as the bank s core engines are still not functioning fully while operating leverage benefits have run out. We forecast mediocre earnings growth and a contraction in ROE. We reiterate our HOLD rating and recommend a switch to KBANK. SARACHADA SORNSONG sarachada.sor@thanachartsec.co.th Thanachart Thanachart Securities Securities Still having a rough ride Hit by repayments of corporate loans and weak retail lending on slow investments and high household debts, SCB s loan growth hasn t been meeting its historical outperforming standard. 11M14 loan growth was at 0.2% versus 2.7% for the sector. Even though an economic recovery looks on track, we don t expect a strong upswing in SCB s loan growth as retail lending prospects (44% of total loans) are still not bright, particularly for auto HP loans that we estimate could take at least a year to get back on track. Also, the positive operating leverage effect is running out as cost-toincome ratio is already at a record low of 36%. Meanwhile, the bank needs to start re-investing as it aims to strengthen its SME franchise and prepare for the digital banking breakthrough. SME beef-up a long journey Given the lack of alpha growth from its corporate blue chip and auto HP strategies, the new CEO and president target to strengthen its SME franchise, aiming to have significant exposure to the segment. While we see this as the right move, we don t foresee an easy ride before accomplishing the bank s goals within a few years (particularly for small-sized SMEs, a segment that remains lucrative). From 20% of loans in 2014, we project SME loans to account for 22% in 2016 as we see many hurdles for SCB ahead. Also, SCB has to compete with KASIKORNBANK (KBANK TB, Bt225, BUY) and TMB Bank (TMB TB, Bt2.94, HOLD), which have spent at least seven years in this market. We cut earnings by 9% over F We fine-tune 2014F earnings up by 2% but lower our forecasts by 4% in 2015, 9% in 2016 and 14% in The earnings cuts are to reflect SCB s weaker-than-expected loan growth, fee income and higher provisions. To fulfill its plan to strengthen its SME franchise and prepare for the digital banking breakthrough, we project an 11% increase p.a. in SCB s operating expenses over the next three years. As a result, we cut our 12-month DDMbased TP to Bt180. Switch to KBANK We reiterate our HOLD on SCB and recommend investors switch to KBANK which offers 18% potential upside to our TP (see KBANK, Taking over as top ROE big bank). 1) We like KBANK s balanced growth policy and strong footing in SME lending where we see it having the brightest prospects. 2) On its stronger loan growth and it being the top fee income generator, KBANK s F EPS CAGR is 12% above SCB s. 3) We forecast KBANK s ROE to be higher than SCB s and believe it deserves a valuation premium over SCB. Our new TP of Bt265 for KBANK implies a 2.1x 2015F P/BV vs.1.9x for SCB at current prices and at our TP. Please see the important notice on the back page COMPANY VALUATION Y/E Dec (Bt m) 2013A 2014F 2015F 2016F Pre Provision Profit 76,222 81,471 85,370 90,407 Net profit 50,233 54,382 56,830 60,751 Consensus NP 54,016 58,879 66,842 Diff frm cons (%) 0.7 (3.5) (9.1) Norm profit 50,233 54,382 56,830 60,751 Prev. Norm profit 53,200 59,175 66,382 Chg frm prev (%) 2.2 (4.0) (8.5) Norm EPS (Bt) Norm EPS grw (%) Norm PE (x) P/BV (x) Div yield (%) ROE (%) ROA (%) PRICE PERFORMANCE (Bt/shr) SCB Rel to SET Index (%) (5) Jan-14 May-14 Sep-14 Jan-15 COMPANY INFORMATION Price: (Bt) as of 16-Jan Market cap (US$ m) 18,770 Listed shares (m shares) 3,394.4 Free float (%) 76.2 Avg. daily turnover (US$ m) M price H/L (Bt) / Sector Bank Major shareholder Crown Property Bureau 21.3% Sources: Bloomberg, Company data, Thanachart estimates

2 COMPANY NOTE SCB SARACHADA SORNSONG Ex 1: Key Assumption Changes 2014F 2015F 2016F 2017F Loan Growth (%) - New Old Change (ppt) (1.6) (3.7) (2.0) (0.1) NIM (%) - New Old Change (ppt) Fee income growth (%) - New Old Change (ppt) (0.3) (0.0) Cost to income ratio (%) - New Old Change (ppt) Provisions (Bt bn) - New Old Change (%) (2.9) Source: Thanachart estimates Ex 2: 12-month DDM-based Valuation (Bt m) 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F Terminal Value Dividend of common shares 17,080 16,682 17,637 18,902 20,700 22,844 46,654 72,578 89, , , ,296 Dividend of preferred shares Dividend payment 17,080 16,682 17,637 18,902 20,700 22,844 46,654 72,578 89, , ,296 1,165,814 Risk-free rate (%) 4.5 Market risk premium (%) 7.5 Beta 1.0 Wacc (%) 12.0 Cost of equity 12.0 Terminal growth (%) 2.0 Equity value 613,146 No. of shares 3,399 Equity value / share Sources: Company data, Thanachart estimates THANACHART SECURITIES DAIWA CAPITAL MARKETS 2

3 COMPANY NOTE SCB SARACHADA SORNSONG Valuation Comparison Ex 3: Valuation Comparison With Regional Peers EPS growth PE P/BV ROE Div. Yield Name BBG Code Country 14F 15F 14F 15F 14F 15F 14F 15F 14F 15F (%) (%) (x) (x) (x) (x) (%) (%) (%) (%) BOC Hong Kong Holdings 2388 HK Hong Kong Bank of East Asia 23 HK Hong Kong (5.5) China Citic Bank Corp 998 HK Hong Kong Hang Seng Bank 11 HK Hong Kong (36.9) Industrial & Commercial Bk 1398 HK Hong Kong Axis Bank AXSB IN India na na na 16.6 na 2.7 na ICICI Bank ICICIBC IN India (11.3) na na State Bank of India SBIN IN India (8.4) Bank Central Asia BBCA IJ Indonesia Bank Danamon BDMN IJ Indonesia (24.2) Bank Internasional BNII IJ Indonesia na na na na na na na na na na Bank Mandiri BMRI IJ Indonesia Bank Pan PNBN IJ Indonesia Bank Rakyat BBRI IJ Indonesia Bank Negara BBNI IJ Indonesia CIMB Group Holdings CIMB MK Malaysia (18.0) Hong Leong Bank HLBK MK Malaysia (6.1) Malayan Banking MAY MK Malaysia (5.9) Public Bank PBKF MK Malaysia na na na na na na Industrial Bank of Korea KS S Korea DBS Group Holdings DBS SP Singapore Oversea-Chinese Banking OCBC SP Singapore United Overseas Bank UOB SP Singapore Bank of Ayudhya BAY TB* Thailand Bangkok Bank BBL TB* Thailand KASIKORNBANK KBANK TB* Thailand Kiatnakin Bank KKP TB* Thailand (44.2) Krung Thai Bank KTB TB* Thailand Siam Commercial Bank SCB TB* Thailand Tisco Financial Group TISCO TB* Thailand (3.9) TMB Bank TMB TB* Thailand Average Source: Bloomberg Note: * Thanachart estimates, using Thanachart normalized EPS Based on 16 Jan 2015 closing prices THANACHART SECURITIES DAIWA CAPITAL MARKETS 3

4 APPENDIX SCB SARACHADA SORNSONG COMPANY DESCRIPTION Siam Commercial Bank (SCB) was Thailand's first home-grown bank, established in 1906 under Royal Charter and listed on the SET in As of 30 September 2010, the bank had, on a consolidated basis, Bt1,363bn in total assets, Bt1,003.4bn in deposits and Bt988.5bn in loans and it was Thailand's fourth-largest commercial bank in terms of total assets, deposits and loans. SCB provides a full range of financial services such as corporate and personal lending, retail and wholesale banking through its head office and its extensive branch network. Source: Thanachart COMPANY RATING Manage ment Liquidity Financial management Source: Thanachart; *CG Awards Risk manage ment *Corp. governance Rating Scale Very Strong 5 Strong 4 Good 3 Fair 2 Weak 1 None 0 THANACHART S SWOT ANALYSIS S Strength W Weakness Leading position in retail products. Strong deposit franchise. Very robust balance sheet. Focus on raising exposure to the corporate lending segment may result in its NIM being lower than peers, but this should be offset by strong loan momentum. O Opportunity Increasing its exposure to the auto hire-purchase lending segment. T Threat Global economic recession. New accounting standards and regulations. CONSENSUS COMPARISON RISKS TO OUR INVESTMENT CASE Consensus Thanachart Diff Target price (Bt) % Net profit 15F (Bt m) 58,879 56,830-3% Net profit 16F (Bt m) 66,842 60,751-9% Consensus REC BUY: 21 HOLD: 8 SELL: 2 HOW ARE WE DIFFERENT FROM THE STREET? We project a sharp rise in operating expenses, and hence our 2015 earnings forecast is below that of the Bloomberg consensus. We are not bullish on SCB as we expect its growth momentum to be derailed by weak retail lending and rising expenses. Meanwhile, we see its strategy to improve SME franchise taking time to bear fruit. In the event, SCB makes better progress in its strategies than we currently expect, it would present an upside risk to our earnings forecast and TP. Slowing economic momentum could act as a drag on consumption and pose a downside risk to our positive view on KBANK. As a result, our TP is lower, when compared to consensus. Sources: Bloomberg consensus, Thanachart estimates Source: Thanachart THANACHART SECURITIES DAIWA CAPITAL MARKETS 4

5 FINANCIAL SUMMARY SCB SARACHADA SORNSONG We forecast a moderate loan growth rebound as retail loans remain weak INCOME STATEMENT FY ending Dec (Bt m ) 2012A 2013A 2014F 2015F 2016F Interest and Dividend Income 103, , , , ,429 Interest Expenses 41,295 47,682 42,121 43,759 47,768 Net Interest Incom e 62,104 73,009 81,552 85,410 89,661 % of total income 60.3% 59.1% 63.5% 62.0% 60.6% Gain on Investment 1,293 2,277 2,700 3,000 3,200 Fee Income 20,456 24,476 25,954 29,068 32,752 Gain on Exchange 7,511 9,079 7,000 8,000 8,800 Others 10,657 10,916 10,280 11,308 12,454 Non-interest Incom e 40,879 50,530 46,934 52,426 58,308 % of total income 39.7% 40.9% 36.5% 38.0% 39.4% Total Incom e 102, , , , ,970 Operating Expenses 42,402 47,317 47,016 52,467 57,563 Pre-provisioning Profit 60,582 76,222 81,471 85,370 90,407 Provisions 9,396 13,641 12,938 13,881 13,991 Pre-tax Profit 51,186 62,581 68,533 71,489 76,416 Income Tax 11,667 11,821 13,707 14,298 15,283 After Tax Profit 39,519 50,759 54,826 57,191 61,133 Equity Income 1 (7) (100) 0 0 Minority Interest (285) (519) (344) (360) (382) Extraordinary Items NET PROFIT 39,235 50,233 54,382 56,830 60,751 Norm alized Profit 39,235 50,233 54,382 56,830 60,751 EPS (Bt) Normalized EPS (Bt) BALANCE SHEET FY ending Dec (Bt m ) 2012A 2013A 2014F 2015F 2016F Strong balance sheet ASSETS: Liquid Item s 194, , , , ,000 cash & cash equivalents 31,322 35,755 30,000 30,000 30,000 interbank & money market 162, , , , ,000 Securities under resale agreeme Investments 458, , , , ,472 Net loans 1,498,993 1,679,097 1,684,546 1,779,044 1,919,378 Gross and accrued interest 1,550,949 1,739,413 1,752,480 1,855,227 2,003,470 Provisions for doubtful 51,956 60,317 67,934 76,183 84,092 Fixed assets - net 44,848 45,024 43,377 43,580 43,376 Other assets 73,205 97, , ,094 99,423 Total assets 2,270,067 2,534,206 2,668,361 2,726,398 2,850,648 LIABILITIES: Liquid Item s 1,730,725 1,950,444 2,000,802 2,076,543 2,207,745 Deposit 1,614,059 1,822,911 1,849,295 1,936,045 2,074,306 Interbank & money market 107, , , , ,147 Liability payable on demand 9,603 8,406 11,507 11,757 12,293 Borrow ings 132,577 95, , ,660 80,212 Other liabilities 191, , , , ,000 Total liabilities 2,054,724 2,286,166 2,382,675 2,400,203 2,480,958 Minority interest 1,553 1,768 2,112 2,472 2,854 Shareholders' equity 213, , , , ,837 Preferred capital Paid-in capital 33,992 33,992 33,992 33,992 33,992 Share premium 11,124 11,124 11,124 11,124 11,124 Surplus/ Others 19,639 18,587 18,587 18,587 18,587 Retained earnings 149, , , , ,134 Liabilities & equity 2,270,067 2,534,206 2,668,361 2,726,398 2,850,648 Sources: Company data, Thanachart estimates THANACHART SECURITIES DAIWA CAPITAL MARKETS 5

6 FINANCIAL SUMMARY SCB SARACHADA SORNSONG VALUATION FY ending Dec 2012A 2013A 2014F 2015F 2016F Normlized PE (x) Normalized PE - at target price (x) PE (x) PE - at target price (x) P/PPP (x ) P/PPP - at target price (x) P/BV (x) P/BV - at target price (x) Dividend yield (%) Mediocre earnings growth on our estimates Market cap / net loans (x) Market cap / deposit (x) (Bt) Normalized EPS EPS DPS PPP/Share BV/Share FINANCIAL RATIOS FY ending Dec 2012A 2013A 2014F 2015F 2016F Grow th Rate (%) Net interest income (NII) Non-interest income (Non-II) (7.1) Operating expenses (0.6) Pre-provisioning profit (PPP) Net profit Normalized profit grow th EPS Normalized EPS Dividend payout ratio Loan - gross Loan - net Deposit NPLs (0.9) Total assets Total equity Already incorporated a sharp rebound in fee income Operating Ratios (%) Net interest margin (NIM) Net interest spread Yield on earnings assets Avg cost of fund NII / operating income Non-II / operating income Fee income / operating income Normalized net margin Cost-to-income Credit cost - provision exp / loans PPP / total assets PPP / total equity ROA ROE Sources: Company data, Thanachart estimates THANACHART SECURITIES DAIWA CAPITAL MARKETS 6

7 FINANCIAL SUMMARY SCB SARACHADA SORNSONG FINANCIAL RATIOS FY ending Dec 2012A 2013A 2014F 2015F 2016F Strong capital position Liquidity and Quality Ratio (%) Loan-to-deposit Loan-to-deposit & S-T borrow ing Net loan / assets Net loan / equity Investment / assets Deposit / liabilities Liabilities / equity Net interbank lender (Bt m) 55,692 52, , , ,853 Tier 1 CAR Tier 2 CAR Total CAR NPLs (Bt m) 35,874 39,992 42,392 44,511 46,737 NPLs / Total loans (NPL Ratio) Loan-Loss-Coverage Sources: Company data, Thanachart estimates THANACHART SECURITIES DAIWA CAPITAL MARKETS 7

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If the downside is 10% or more, the rating is SELL. For stocks where the upside or downside is less than 10%, the rating is HOLD. Unless otherwise specified, these ratings are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal rating. For the sector, Thanachart looks at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word Positive, is used when Thanachart sees the industry trend improving. An arrow pointing down, or the word Negative, is used when Thanachart sees the industry trend deteriorating. A double-tipped horizontal arrow, or the word Unchanged, is used when the industry trend does not look as if it will alter. The industry trend view is Thanachart s top-down perspective on the industry rather than a bottom-up interpretation from the stocks that Thanachart covers. An Overweight sector weighting is used when Thanachart has BUYs on majority of the stocks under its coverage by market cap. Underweight is used when Thanachart has SELLs on majority of the stocks it covers by market cap. Neutral is used when there are relatively equal weightings of BUYs and SELLs]. Ownership of Securities For Ownership of Securities information, please visit BlueMatrix disclosure Link at Investment Banking Relationships For Investment Banking Relationship, please visit BlueMatrix disclosure Link at THANACHART SECURITIES DAIWA CAPITAL MARKETS 10

11 DISCLAIMER SCB SARACHADA SORNSONG Relevant Relationships (TNS) TNS may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. TNS market making TNS may from time to time make a market in securities covered by this research. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, we may also charge a maximum of 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. * The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association Thanachart Securities Pcl. Research Team 28 Floor, Siam Tower Unit A1 989 Rama 1, Pathumwan Road, Bangkok Tel: thanachart.res@thanachartsec.co.th Pimpaka Nichgaroon, CFA Head of Research Economics & Strategy pimpaka.nic@thanachartsec.co.th Sarachada Sornsong Financial, Telecom sarachada.sor@thanachartsec.co.th Phannarai Tiyapittayarut Property, Retail phannarai.von@thanachartsec.co.th Ittikorn Thepmani Insurance ittikorn.the@thanachartsec.co.th Supanna Suwankird Energy, Utilities supanna.suw@thanachartsec.co.th Saksid Phadthananarak Construction, Transportation saksid.pha@thanachartsec.co.th Kalvalee Thongsomaung Food, Hotel, Media kalvalee.tho@thanachartsec.co.th Rata Limsuthiwanpoom Assistant Analyst Rata.Lim@thanachartsec.co.th Siriporn Arunothai Ad Hoc Research, Healthcare siriporn.aru@thanachartsec.co.th Noppadol Piriyawut Senior Technical Analyst noppadol.pri@thanachartsec.co.th Adisak Phupiphathirungul, CFA Retail Market Strategy adisak.phu@thanachartsec.co.th Chalida Tantriyanont Assistant Analyst chalida.tan@thanachartsec.co.th THANACHART SECURITIES DAIWA CAPITAL MARKETS 11