Credit Suisse Sess CardX, AutoX and Strategic JVs Units to Drive Valuation Under SCBx

Credit Suisse in its latest coverage on Thailand’s banking sector valued possible drivers of Siam Commercial Bank’s (SET:SCB) subsidiaries to be under its restructured holding company SBCx. SCB’s management plans to unlock value of high potential business through IPO which the Credit Suisse believes to be CardX, AutoX, AISCB and BITKUB.

CardX is expected to be the industry leader driven by SCB’s position of being the industry leader for credit card and personal loan. The bank is planning to transfer THB 111 billion from its outstanding loan as of second quarter amounting THB 135 billion. According to Credit Suisse after the transfer lion share of the customer base would be revolvers which would potentially position CardX to be the industry leader in cards business.

Credit Suisse dividend discount model valued CardX comparing to industry peers Krungthai Card (SET: KTC) and AEON Thana Sinsap (SET: AEONTs), which shows a forward price-to-earnings ratio of 26x in 2022 with the assumption of EPS CARG greater than 20% over the next five years.

AutoX is likely to penetrate underbanked segment with vehicle title loan products. Due to higher NPL risk and cost of operations of commercial banks, this segment is not favorable to commercial banks even though this very segment offers higher yield of 15-24%. AutoX being independent of the main banking unit would have more flexibility to cut through competition. Management believes AutoX to be among top three players in this sector.

Unlike traditional customer touch points that competitor such as Muangthai Capital (MTC) or Srisawad Corporation (SAWAD) use, SCB could potentially leverage it technological ecosystems to be omni-channel such as agent points or other digital channels.

The company is expected to start operations in 2023 and with Credit Suisse’s assumption of loan book between THB 30-40 billion along with operations normalizing in 2024-2026 P/E to fall in the range of 20—40x.

SCB recently signed joint venture with Advanced Info Service (ADVANC) and the ADVANC being the largest telco operator in the country, it would open door for SCB to tap underbanked and SMEs at a much lower cost than what typically banks and non-bank financial institutions incur.

The recent acquisition of BITKUB through SCB’s subsidiary SCB Securities (SCBS) shows the company’s commitment towards expanding to crypto space. BITKUB has strong earnings in book and together with SCB they have the potential to expand into blockchain, NFT and other Defi projects.

The research house expects BITKUB to contribute THB 1.4 billion earnings to SCB in 2022. In terms of valuation BITKUB’s forward P/E multiple of 22x in 2022 with assumption of 20-30% EPS CAGR and ROE of 30-40% in the next five years.

While the bank’s net interest margin would reduce since high yield business are to be carried out by its subsidiary but it would significantly be offset by lower credit cost and operating expenses.

Credit Suisse’s model yielded a PBV of 1.2x under the new structure and due to great flexibly on capital management would lead to higher divined payout and ROE.