SAWAD’s 3Q24 earnings were in line with our estimates. NII was weaker than expected but this was offset by higher-than-expected non-NII and lower-than-expected ECL. Results reflected easing NPL inflow and credit cost, contracting loans, big squeeze in NIM and strong non-NII growth and easing cost to income ratio (suggesting smaller loss on repossessed cars).
Research
SAWAD – 3Q24: Miss on NII, beat in non-NII and ECL
We cut our 2024 earnings forecast by 2% and 2025 by 8%, adjusting loan growth and NIM. Maintain Underperform with TP cut to Bt37 from Bt41.
3Q24: Miss on NII offset by a beat in non-NII and ECL. In 3Q24, earnings rose 3% QoQ but fell 6% YoY to Bt1.31bn, in line with INVX and consensus forecasts. NII was weaker than expected but this was offset by higher-than-expected non-NII and lower-than-expected ECL.
Highlights:
- Asset quality: NPLs were stable QoQ (+13% QoQ if write-offs are added back vs. +16% QoQ in 2Q24). Credit cost came down 17 bps QoQ to 2% in 3Q24, lower than anticipated. LLR coverage rose to 68% from 66% at 2Q24. We trim credit cost by 10 bps each year to 2.05% in 2024 and 2% in 2025.
- Loan growth: -3% QoQ, +4% YoY, -1% YTD, worse than expected. This suggests that SAWAD may not have sufficient funding to support loan expansion. We slash our loan growth assumption to 0% from 7% in 2024F and 10% to 7% in 2025F.
- NIM: Worse than expected, -64 bps QoQ, with -52 bps QoQ in loan yield and +28 bps QoQ in cost of funds. We cut our NIM by 5 bps in each of 2024F and 2025F.
- Non-NII: +19% QoQ, +31% YoY.
- Cost to income ratio: -16 bps QoQ (-252 bps YoY) to 51.11%, reflecting an ease in losses on repossessed vehicles. Opex decreased 2% QoQ (-7% YoY).
Cut earnings forecast. We cut our 2024 earnings forecast by 2% and 2025 by 8%, adjusting loan growth and NIM. 9M24 earnings accounted for 75% of our revised full-year forecast. We expect 4Q24 earnings to be stable QoQ and up slightly YoY. We expect 5% growth in earnings (-5% for EPS) in 2025, underpinned by 7% loan growth, a 21 bps rise in NIM and a 5 bps reduction in credit cost.
Maintain Underperform with TP cut to Bt37 from Bt41 based on 1.6x PBV or 11.2x PE for 2025F.
Risks. 1) Asset quality risk from an uneven economic recovery and falling used vehicle prices, 2) NIM risk from rising bond yield, 3) rising competition from banks, 4) regulatory risk and 5) ESG risk from the court case and market conduct.