Company Overview
SCB X Public Company Limited is a Thailand-based universal bank that provides financial services. The Company is engaged in offering deposits and lending and a range of other products and services, to meet the needs of customers. Its retail services include home loans, personal credit, car hire purchase, credit cards, automated teller machine (ATM) cards, debit cards, currency exchange facilities and overseas remittances as well as investment and insurance products. For corporate and small and medium enterprises (SME) customers, the Bank offers cash management-related services, lending products, international trade financing, treasury products, debt and capital market products, corporate advisory, investment banking and other services. The Company’s products include loans, cards, deposits, insurance, investment, payment, digital banking, and other services. Its subsidiaries include SCB Asset Management Co., Ltd., and SCB Securities Co., Ltd.
Investment Overview
Credit cost to decline but remain elevated. With SCB’s active NPL management and debt restructuring activities, we expect its credit costs to gradually decline. Nonetheless, we believe its overall credit cost will remain elevated, albeit declining, due particularly to the asset quality concerns from SME and Gen 2 business. With that, we assume its FY24F/FY25F credit costs to remain high at 188bps/180bps (vs. 192bps in FY23), pressuring its earnings growth at least in FY24F/FY25F.
Attractive dividend yield. SCB targets its ROE to recover to 13-15% in the next 3-5 years, and capital management via dividend payout is one of the strategies to reach that goal. Management has guided that an optimal level of Tier 1 capital at the bank should be around 15.0-16.0% (vs. 17.9% at end-32Q24). With that, we expect SCB to pay Bt10.10 dividend per share (DPS) for its FY24F, implying an attractive dividend yield of 8.9%.
Potential upside from Robinhood performance and gains from sales of investments. The buyer of Purple Venture (PPV) – Robinhood application’s operator – will pay the additional THB1.6bn performance-based payment to SCB when the operation of PPV is profitable. Meanwhile, depending on market conditions, SCB may book gains on sales of SCB 10X’s investments in start-ups and tech companies sometime in the future. We have yet to incorporate such gains in our current forecasts.
Maintain HOLD with a higher TP of THB122. As we roll over our valuation base to FY25F, we derive a higher TP of THB122 (vs. THB101 previously) for SCB. Our TP is based on 0.9x FY24F P/BV, i.e., 0.5SD below its long-term average P/BV. While our concerns remain on SCB’s asset quality outlook, we expect its dividend yield to remain attractive. Our HOLD rating stands.
While SCB's asset quality remains our concerns, we maintain our HOLD rating on the counter, given its high dividend yield of 8.9% in FY24F.
Risks
Slow recovery of the economy. If the economy takes too long to recover, there could be downside risks to SCB’s loan and earnings growth, as well as its asset quality.
Abrupt change in interest rate trend. SCB’s NIM expansion is premised on a rising interest rate trend. An abrupt change in interest rate trend could lead to an earnings downgrade.
Topic
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