Key Takeaways BUY Siam Commercial Bank PCL (SCB) TP: Bt227.00 Business targets for 2015 announced Upside/downside +12.2% ► Analyst meeting on 2 December 2014. ► Unveiled four core strategies for 2015. ► Revised our FY15 assumptions to fall in line with management’s guidance. Sector Paid-up shares (shares mn) Market capitalization (Bt mn) Free float (%) 12-mth daily avg. turnover (Bt mn) 12-mth trading range (Bt) ► We maintain our BUY recommendation with a target price of Bt227.00 Four core strategies for 2015 SCB revealed its core strategies for 2015 at its analyst meeting yesterday. These include: (1) Transform the SME franchise. (2) Acquire customers. (3) Digitize the bank. (4) Enhance staff capabilities. To transform the SME franchise, the bank will deepen its relationships using advanced analytics. This will result in wider fee-based product holding and an increase in ‘main operating account’ status. In an attempt to acquire customers, SCB plans to develop cross border networks to support both outbound and inbound business to Thailand. The bank will also shift its business model towards new and emerging digital platforms to enhance customer experience. Lastly, SCB will work on acquiring and retooling both new and old talent to accelerate its capabilities building and improving effectiveness on a bank-wide basis. Revised FY15 assumptions Although loan growth has slowed sharply this year, rising a mere 2.7% in 9M14, the bank expects loans to start recovering in 2015 as it believes GDP will grow 3.0-3.5% next year. Management advised that its FY15 loan growth target would remain unchanged from this year at 5-7%. Similarly, we forecast FY15 loan growth at 6% as one of the core strategies of the bank next year is to grow its smaller-end SME segment and its housing loans continue to see strong demand. For the remainder of this year, we expect the bank to receive a boost in its lending from the funding it provided WHA to acquire HEMRAJ for Bt14bn as well as increased spending that takes place during the holiday season. Given our revision to loan growth in FY15 as well as a downward revision in non-interest income growth from 15% to 12%, we forecast FY15 earnings at Bt58.93bn, up 9.6% YoY from our FY14 estimate of Bt53.79bn. Please see disclaimer on last page 3 December 2014 Major shareholders (%) The Crown Property Vayupak Fund 1 by MFC Vayupak Fund 1 by KTAM Banking 3,394 670,377 76.23 1,044 199.00/ 130.50 21.3 11.6 11.6 Financial highlights 2012 2013 2014E 2015E Net profit (Btmn) 39,235 50,233 53,785 58,931 EPS (Bt) 11.5 14.8 15.8 17.3 EPS growth (%) 8.2 28.0 7.1 9.6 BVPS (Bt) 62.9 72.5 83.0 94.4 DPS (Bt) 4.5 5.3 5.5 6.0 ROE (%) 19.6 21.8 20.4 19.5 P/E (x) 16.5 12.9 12.0 11.0 P/BV (x) 3.0 2.6 2.3 2.0 Div. yield (%) 2.4 2.8 2.9 3.2 Source: SETSMART, AWS Thailand Research Department Mr. Warut Siwasariyanon, License, No. 17923 Tel: 02 680 5041 Mr. Alex Manoonpol, (Assistant Analyst) 1 Key Takeaways Maintain our BUY recommendation We maintain our BUY recommendation with a target price of Bt227.00 as we believe the bank has the ability to grow its loan portfolio even further due to its strong asset quality (NPL ratio is the lowest in the industry). While the bank intends to grow its SME segment, it will also focus on increasing its fee income from its corporate customers, which will boost its overall bottom line. Figure 1: SCB’s targets SCB targets ROE ROA Net interest margin Non-interest income growth Cost to income ratio Total loan growth NPLs (gross) Credit cost AWS estimates 2014 9M14A 2015 2014E 2015E 17-20% 1.8-2.0% 3.1-3.3% 7-10% 38-40% 5-7% 2.0-2.3% 21.1% 2.1% 3.29% -5.1% 36.1% 2.7% 2.11% 17-20% 1.8-2.0% 3.2-3.3% 10-14% 38-40% 5-7% 2.1-2.3% 20.35% 2.06% 3.24% 3.50% 38.65% 4.00% 2.26% 19.73% 2.14% 3.30% 12.00% 38.75% 6.00% 2.23% 80-85 bps 74 bps 75-80 bps 78 bps 76 bps Source: Company data, AWS Please see disclaimer on last page 3 December 2014 2 CG Report Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013. ADVANC AOT ASIMAR BAFS BANPU BAY BBL BCP BECL BKI BROOK BTS CIMBT CK CPF CPN CSL DRT DTAC EASTW EGCO ERW GRAMMY HANA HEMRAJ ICC INTUCH IRPC IVL KBANK KKP KTB LPN MCOT MINT NKI NOBLE PAP PG PHOL PR PRANDA PS PSL PTT PTTEP PTTGC QH RATCH ROBINS RS S&J SAMART SAMTEL SAT SC SCB SCC SCSMG SE-ED SIM SIS SITHAI SNC SPALI SPI SSI SSSC SVI SYMC TCAP THAI THCOM THRE TIP TISCO TKT TMB TNITY TOP TRC TRUE TTW TVO UV VGI WACOAL 2S ACAP AF AHC AIT AKP AMANAH AMARIN AMATA AP APCO APCS ASIA ASK ASP AYUD BEC BFIT BH BIGC BJC BLA BMCL BWG CCET CENTEL CFRESH CGS CHOW CM CNT CPALL CSC DCC DELTA DTC ECL EE EIC ESSO FE FORTH GBX GC GFPT GL GLOW GOLD GSTEL GUNKUL HMPRO HTC IFEC INET ITD JAS JUBILE KBS KCE KGI KKC KSL KWC L&E LANNA LH LHBANK LHK LIVE LOXLEY LRH LST MACO MAJOR MAKRO MBK MBKET MFC MFEC MODERN MTI NBC NCH NINE NMG NSI NWR OCC OFM OGC OISHI PB PDI PE PF PJW PM PPM PPP PREB PRG PT PYLON QTC RASA SABINA SAMCO SCCC SCG SEAFCO SFP SIAM SINGER SIRI SKR SMT SNP SPCG SPPT SSF STANLY STEC SUC SUSCO SYNTEC TASCO TCP TF TFD TFI THANA THANI THIP TICON TIPCO TK TLUXE TMILL TMT TNL TOG TPC TPCORP TPIPL TRT TRU TSC TSTE TSTH TTA TTCL TUF TWFP TYM UAC UMI UMS UP UPOIC UT VIBHA VIH VNG VNT YUASA ZMICO A AAV AEC AEONTS AFC AGE AH AI AJ AKR ALUCON ANAN ARIP ASIA BAT-3K BCH BEAUTY BGT BLAND BOL BROCK BSBM CHARAN CHUO CI CIG CITY CMR CNS CPL CRANE CSP CSR CTW DEMCO DNA DRACO EA EARTH EASON EMC EPCO F&D FNS FOCUS FPI FSS GENCO GFM GJS GLOBAL HFT HTECH HYDRO IFS IHL ILING INOX IRC IRCP IT JMART JMT JTS JUTHA KASET KC KCAR KDH KTC KWH LALIN LEE MATCH MATI MBAX MDX PRINC MJD MK MOONG MPIC MSC NC NIPPON NNCL NTV OSK PAE PATO PICO PL POST PRECHA PRIN Q-CON QLT RCI RCL ROJNA RPC SCBLIF SCP SENA SF SGP SIMAT SLC SMIT SMK SOLAR SPC SPG SRICHA SSC STA SUPER SVOA SWC SYNEX TBSP TCCC TEAM TGCI TIC TIES TIW TKS TMC TMD TMI TNDT TNPC TOPP TPAC TPP TR TTI TVD TVI TWZ UBIS UEC UOBKH UPF UWC VARO VTE WAVE WG WIN WORK Score Range Number of Logo Description 90 – 100 Excellent 80 – 89 Very Good 70 – 79 Good 60 – 69 Satisfactory 50 – 59 Pass Below 50 No logo given Please see disclaimer on last page N/A Corporate Governance Report disclaimer The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date, Asia wealth Securities Company Limited does not conform nor certify the accuracy of such survey result. 3 December 2014 3 Contact Branch Head Office Address 540 Floor 7,14,17 , Mercury Tower, Ploenchit Road, Lumphini, Phone Fax 02-680-5000 02-680-5111 02-630-3500 02-630-3530-1 02-261-1314-21 02-261-1328 02-884-7333 02-884-7357, Pathumwan Bangkok 10330 Silom 191 Silom Complex Building,21st Floor Room 2,3-1 Silom Rd., Silom, Bangrak, Bangkok, 10500 Thailand Asok 159 Sermmitr Tower, 17th FL. 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