CGS International Securities (Thailand) (CGSI) has maintained its “Add” rating on SCB following a higher-than-expected 4Q24 results that beat the analyst and market expectations.
Siam Commercial Bank (SCB) reported an impressive fourth-quarter performance for 2024, with net profits reaching THB11.7 billion, marking a 6.5% year-over-year increase and a 7.0% rise quarter-over-quarter. This figure exceeded analysts’ forecasts by 10% and consensus expectations by 19%, largely due to surprisingly lower credit costs.
A significant reduction in credit costs, which came in at 162 basis points compared to the previously anticipated 180 basis points, was the principal factor driving the positive earnings surprise. However, loan growth remained tepid, declining by 1.0% year-on-year and 1.3% quarter-on-quarter, primarily due to weaker performance in SME loans, auto loans, and the Card X loan portfolio.
Meanwhile, the Non-Performing Loan (NPL) ratio saw a slight uptick to 4.1% from 3.9% in the previous quarter. While this increase aligns with trends across the banking sector—a response to ongoing debt restructuring initiatives—it emphasizes SCB’s rising Stage 2 loan volumes, which climbed 28% year-on-year and 4% quarter-on-quarter.
Notably, the bank’s net fee income registered notable growth, up by 11.4% year-on-year and 3.1% from the third quarter, fueled by wealth management and transaction fees. However, SCB’s cost-to-income ratio has inched up to 42.7% from 41.6% in 3Q24.
In terms of future outlook, SCB has set cautious financial targets for 2025, forecasting loan growth at 1-3%, a net interest margin (NIM) of 3.6-3.8%, with a goal to enhance fee income growth by 2-4%. The bank aims to maintain its credit costs at 150-170 basis points. These projections underscore a strategic shift towards generating revenue from wealth management while keeping a conservative approach to lending.
SCB’s financial objectives do not factor in the effects of the Bank of Thailand’s debt relief program.
These projections underscore SCB’s conservative approach toward lending, with anticipated revenue growth primarily driven by wealth management fee income. For 2025, SCB expects operating expenses to remain steady year-over-year. The bank plans to boost the profitability of its Gen 2 businesses by enhancing branch efficiency at Auto X (a non-listed entity) and refining credit costs and operational expenses at Card X (also non-listed). In the fourth quarter of 2024, Auto X and Card X accounted for 2% and 4% of SCB’s total loans, respectively.
Amid these developments, SCB adjusts its earnings-per-share forecasts modestly for FY25F-26F, reflecting a slight reduction of 0.1-5.1%. This decrease stems from a revised, more conservative loan growth estimate of 1-2% and a marginal decline in NIM assumptions.
Despite these adjustments, SCB maintains an “Add” rating with a GGM-based target price of THB130 for 2025. The bank anticipates a robust dividend yield of 9.0-9.5% per annum from FY25F to FY27F, coupled with an expected rise in return on equity to 9.4-9.5% during the same period.
