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News Comment

News Comment

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11/19/2013

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News Comment SCB (FP Bt140, Buy

)
Acquisition of SCNYL will boost SCB’s profitability.
► Reiterate “Buy”. We reiterate a “Buy” rating on SCB and continue to choose SCB as our top pick among the banks. SCB’s acquisition of SCNYL is a positive move. The cost at Bt8.4bn (PBV 3.05x, PER 8.4x) represents a good price. Consolidating SCNYL into SCB will allow the bank to realize a higher net profit and ROE (SCB’s ROE is 16% while SCNYL’s is above 30%). We expect the acquisition to improve SCB’s ROE by about 0.51%. This does not include the benefits of its increased capacity to expand its bancassurance business. ► SCB agrees to purchase SCNYL from New York Life. SCB reported on 17 Feb that it had entered a share-purchase agreement to acquire 31.475mn shares (47.33%) in SCNYL from New York Life and an affiliate. After the purchase, SCB's stake in SCNYL will rise from 47.33% to 94.66% and SCB will make a mandatory tender offer for all the remaining shares of SCNYL. The deal is expected to be completed in Mar11. ► Total acquisition cost is Bt8.4bn. The acquisition price is Bt266.89/share of SCNYL (PBV 3.05x, PER 8.4x; SCNYL 9M10 EPS Bt23.97/share, BV Bt87.42). ► Acquisition to support SCB long-term strategy. SCB views life insurance as an important component for its long-term strategy and as one that complements its banking franchise. The bank sees large potential in the life insurance industry in Thailand, which prompted it to acquire control of SCNYL. ► We view the development as positive to SCB's share price: ● Higher stake in SCNYL will allow SCB to better expand its bancassurance business. In 2010, with BLA being more aggressive in its bancassurance business and MTL working more closely with Muang Thai Life (MTL), SCNYL’s first-year premiums (FYP) declined 1% (versus growth of 20% in 2008 and 48% in 2009), while BLA’s increased 42% and MTL’s grew 24%. We expect to see an improvement in SCNYL's premium growth as a result of SCB’s increased holding. ● The acquisition price at Bt8.4bn is a good one. The price reflects a PER of 8.4x and PBV of 3.05x. In comparison, BLA’s PBV is 3.8x. When KBANK purchased MTL in 2009, the implied PBV was 3.9x. SCNYL generates a net profit of about Bt2bn per annum. Paying Bt8.4bn for an additional half stake in SCNYL will allow SCB to realize another Bt1bn from SCNYL's net income. The payback period for the purchase at around 8 years is very reasonable. ** Note that KBANK acquired additional stakes in Muang Thai Group Holdings (MTGH), raising its interest to 51% on 30 Nov 2009. ** ● SCB’s profitability will improve. We expect this acquisition to improve SCB’s ROE by about 0.5-1% from its current level of 16%. Although we expect SCB's cost-toincome ratio to increase from 50% to over 60% when it starts consolidating SCNYL in 1Q11 (due to the high cost ratios of insurance companies), SCB’s profitability in terms of ROE will increase. SCNYL’s ROE is over 30%. As a result, consolidating SCNYL will be positive to SCB’s ROE.

21 February 2011
Sirinattha Techasiriwan Sirinattha.t@kasikornsecurities.com +662 696-0054

21 February 2011

www.kasikornsecurities.com

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