Target price : Bt10.00
Recommendation : BUY
Closing Price (7 April 09) : Bt8.45
1Q09 profit is projected to decline YoY but increase QoQ
- First quarter net profit is projected at Bt927.76m, decreasing by 30.5% YoY but increasing by 41.7% QoQ.
- The bank has revised its 2009 loan target down to 6.4%, translating to Bt18b in value.
- We maintain 'BUY' rating on the stock whose fair value is at Bt10/share for 2009. There is also dividend payment for 2008 amounting to Bt0.70/share, whereby XD sign will be posted on April 30, 2009.
First quarter net profit is projected at Bt927.76m, decreasing by 30.5% YoY but increasing by 41.7% QoQ
Net loans for the first 2 months of 2009 was down slightly by 0.3%, which was lower than a 2.5% contraction witnessed by the industry. Retail loans, particularly mortgage and Corporate loans continued to improve but those of SME declined. We expect a flat loan growth for YTD March, while NIM is projected to be weaker than the prior quarter then the bank booked restructured loans worth Bt200m. Comparing YoY, the drop will be mainly due to a sharp reduction in VAYU dividend from Bt216m YoY to only Bt81m.
Provisions will stand in the normal range at Bt375m or Bt1.50b/year. This represents both YoY, QoQ decline. NPL trend has been moving upward due mainly from delayed payments in the SME business, but management is confident that the level is still under control. For the period, SCIB will book some gains from investment. Its fee income will be steady as decline in loan-related fees will be compensated by rising income from Bancassurance, especially those in alliances with AIA. Operating expenses will rise YoY with salary adjustments made after 1Q last year but will fall QoQ due to absence of bonus payment. Impairment charges will likely fall to around Bt300-400m for this year. We project a Cost/Income of 61.9% for the first quarter, against 49.4% YoY, 67.5% QoQ. Hence, net profit is estimated at Bt927.76m, decreasing by 30.5% YoY but increasing by 41.7% QoQ.
The bank has revised down loan target to 6.4%
Recently, SCIB has revised down 2009 loan target to 6.4%, translating to Bt18b and comprising of around Bt10b in retail loans and the rest Corporate/SME loans. The target has still not incorporated loans from the government. There is a plan to sell NPLs worth Bt7b this year whereby bidding is expected in 1H09, as well as issue to bonds to strengthen its Tier02 capital. The bonds will be offered in tranches, the first lot of approximately Bt5-10b from the total approved amount of Bt80b.
We maintain 'BUY' with 2009 fair value standing at Bt10/share
SCIB share price has risen by almost 20% from Bt7.05 at end-2008. There have also been share accumulations by the Thanachart Group, which was in line with previous news that The Bank of Nova Scotia is among those interested in purchasing SCIB shares from the FIDF. We share our positive view should SCIB take this Canadian Bank as its partner as there are business synergies in terms of business and size. The merger between TBANK and SCIB will likely produce a bank with asset size of Bt782.71b, slightly larger than that of BAY (Bt742.58m).
The current share price still offers satisfactory upside from our fair value of Bt10/share. There is also another Bt0.70 in dividend payment for 2008 performance whereby XD sign will be posted on April 30, 2009. Maintain 'BUY'.
By Phillip Securities (Thailand) Plc. on Apr 8, 2009
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