• Targets 6-8% loan growth and up to 5% non-NII growth; high yield loans and wealth management to drive revenue growth
• Higher OPEX due to transformation projects will push up cost to income ratio; expect new online banking platform to lead to branch and headcount reduction
• OUTPERFORM with Bt170 TP, implying 12x FY18F P/E and 1.5x P/BV; prefer SCB to KBANK for better non-NII growth and cheaper valuation

Focus on high yield loans and wealth management business

At the press conference yesterday, CEO said SCB is targeting to downsize its network to 400 branches (from 1,153 now) and headcount to 15k (from 27k now) by 2020. However, CFO said these were not firm plans. The bank is also targeting 6-8% loan growth, up to 5% non-NII growth, and 3.1-3.3% NIM this year. Loan growth would be driven by small SMEs, auto/home equity, credit card and personal loans, while corporate and mortgage loans should grow 4-6% this year. Non-NII growth would be driven by the wealth management unit. On a less positive note, net insurance income should remain weak given low interest rates and tighter regulation.

Transformation projects to push up cost-to-income ratio

SCB is targeting 42-45% ratio in 2018 vs 42.3% in 2017 and plans to spend Bt20bn of its investment budget on the IT transformation project this year (vs Bt18bn last year). OPEX should remain high after it starts to amortize costs in FY18. On asset quality, CFO clarified that NPL rose mainly due to one-time reclassification of a mortgage loan as the borrower could not make principal payments. Looking forward, the bank is targeting to keep NPL ratio stable at 3.0% and minimum NPL coverage at 130% but has no guidance for credit cost. Our forecast EPS growth for FY18F and FY19F remain at 11% and 10%.

OUTPERFORM, TP Bt170; prefer SCB to KBANK

This is a good opportunity to accumulate SCB as it has underperformed the market by 15% in the past 12 months. The market has punished SCB excessively for the rising OPEX and potential increase in NPL in PACE loan. We prefer SCB to KBANK, as the former is trading at 16% discount to the latter based on FY18F PE multiple.