Date: October 22, 2024
Broker: UOB Kay Hian
Company Overview
SCB X (Bloomberg ticker: SCB TB) is one of the largest commercial banks in Thailand, holding around 15% market share in the country’s credit market. The bank emphasizes retail lending, which constitutes 46% of its loan portfolio. SCB X has a strong focus on consumer loans and continues to expand its services in financial technology.
Stock Data
- Share Price: Bt110.00
- Target Price: Bt134.00 (previously Bt130.00)
- Upside Potential: +22.7%
- Market Cap: Bt370,381.9 million (approximately US$11,184.7 million)
- Shares Issued: 3,367.1 million
- 52-week high/low: Bt116.50/Bt95.50
- Major Shareholders:
- His Majesty King Maha Vajiralongkorn: 23.6%
- Vayupak Fund 1: 23.3%
- Thai NVDR: 5.3%
3Q24 Financial Performance
SCB X reported a net profit of Bt10.9 billion in 3Q24, which marked an increase of 13% year-on-year and 9% quarter-on-quarter. This performance exceeded both the bank’s and market expectations by 15% and 10%, respectively. Key factors contributing to this result were lower-than-expected provision and non-interest expenses.
Key Figures:
- Net Interest Income: Bt32.6 billion (up 3.5% YoY)
- Non-Interest Income: Bt9.7 billion (down 18.2% YoY)
- Loan Loss Provision: Bt11 billion (down 5.7% QoQ)
- Cost-to-Income Ratio: 41.6%
Divestment of Purple Ventures
SCB X announced the sale of Purple Ventures, the company behind the Robinhood application (a food delivery and service platform). The transaction was made to a consortium led by Yip In Tsoi, valued at up to Bt2 billion. This sale consisted of an initial payment of Bt400 million and an additional performance-based payment of up to Bt1.6 billion. The sale aims to eliminate the ongoing losses associated with the application, estimated at Bt2 billion annually. SCB X recorded a total net impact of Bt1.5 billion from the sale and closure of the Robinhood business.
Interest Rate Sensitivity and Outlook
SCB X’s performance is sensitive to changes in policy rates. The bank estimates that a 1% reduction in interest rates would result in a 25-30 basis point (bp) decrease in its net interest margin (NIM). However, due to its significant retail loan portfolio (48% with fixed lending rates), SCB X is better positioned to absorb rate cuts compared to banks with a larger focus on corporate loans. The bank expects further rate cuts in 2025 and has already factored this into its earnings forecasts.
Asset Quality and Provisions
The asset quality of SCB X showed improvement in 3Q24. The bank’s provision expenses were down 6% quarter-on-quarter, leading to a 10bp decline in credit costs to 180bp. While the Non-Performing Loan (NPL) ratio increased slightly from 3.34% in 2Q24 to 3.38% in 3Q24, the absolute amount of NPLs decreased by 0.5%. The loan-loss coverage ratio also rose from 162% to 164%.
Management remains optimistic about maintaining asset quality, aided by a cautious lending policy and strategic management of the credit card portfolio.
Revised Earnings Forecast
UOB Kay Hian has revised SCB X’s earnings forecast upwards for 2024-2026:
- 2024: Bt42,681 million (+5.0% from previous forecast)
- 2025: Bt45,107 million (+3.8%)
- 2026: Bt47,282 million (+2.4%)
These revisions take into account the expected rate cuts, the divestment of Robinhood, and positive trends in asset quality.
Valuation and Recommendation
UOB Kay Hian maintains a “BUY” recommendation for SCB X with an increased target price of Bt134.00. The valuation is based on the Gordon Growth Model, with an estimated cost of equity at 11% and long-term growth at 2%. The target price implies a 0.9x 2025F Price-to-Book (P/B) ratio, which is +1 Standard Deviation (SD) to its five-year average.
SCB X offers a compelling dividend yield, estimated between 8-10% in 2024, making it an attractive investment.
Environmental, Social, and Governance (ESG) Initiatives
- Environmental: SCB X is committed to sustainability, aiming to adopt 100% electric vehicles by 2028 and enhance energy efficiency across its operations.
- Social: The bank continues to invest in social welfare projects, focusing on youth development and access to water, crucial for agriculture and daily life.
- Governance: SCB X has established a strong governance structure, prioritizing ethics, integrity, and transparency in its operations.
Conclusion
SCB X’s robust 3Q24 performance, strategic divestment of non-core assets, and proactive approach to managing interest rate fluctuations place it in a favorable position for sustained growth. The bank’s focus on asset quality and disciplined cost management further supports a positive outlook, aligning with UOB Kay Hian’s “BUY” recommendation.
