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Data X And Typhoon AI Will Improve Future Cost Management And Asset Quality

WA
Consensus Narrative from 21 Analysts
Published
November 19 2024
Updated
March 12 2025
Share
WarrenAI's Fair Value
฿128.14
3.6% undervalued intrinsic discount
12 Mar
฿123.50
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1Y
8.3%
7D
1.6%

Key Takeaways

  • Strategic focus on AI and digitalization is expected to enhance efficiencies, improving cost management and asset quality for better margins and earnings.
  • Growth initiatives like Home Credit Vietnam acquisition and virtual banking aim to boost revenue and enhance long-term profitability.
  • Economic slowdown, rising household debt, and increasing NPLs could pressure SCB X's revenue, credit quality, and profitability amidst an uncertain interest rate landscape.

Catalysts

About SCB X
    Engages banking, consumer and digital finance, and platform and technology businesses in Thailand and internationally.
What are the underlying business or industry changes driving this perspective?
  • SCB X's strategic focus on enhancing efficiencies through AI deployment and digitalization is expected to improve cost management and asset quality, potentially leading to better net margins and earnings.
  • The company plans to leverage its AI capabilities, including its Data X infrastructure and Typhoon language model, to improve cash collection efficiencies and underwriting processes, which could enhance revenue and net margins.
  • SCB X aims to increase profitability in its Gen 2 businesses (CardX and AutoX) by emphasizing asset quality improvement and credit cost reduction, which could result in higher earnings.
  • The expected improvement in asset quality management and credit cost reduction, particularly in CardX, suggests that the company anticipates a healthier financial position, supporting stronger earnings.
  • SCB X is focusing on strategic growth initiatives, such as the acquisition of Home Credit Vietnam and the establishment of a virtual banking platform, which could drive revenue growth and enhance long-term profitability.

SCB X Earnings and Revenue Growth

SCB X Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming SCB X's revenue will grow by 11.7% annually over the next 3 years.
  • Analysts assume that profit margins will shrink from 33.9% today to 27.9% in 3 years time.
  • Analysts expect earnings to reach THB 50.5 billion (and earnings per share of THB 14.9) by about March 2028, up from THB 43.9 billion today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, up from 9.5x today. This future PE is greater than the current PE for the TH Banks industry at 7.9x.
  • Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 9.08%, as per the Simply Wall St company report.

SCB X Future Earnings Per Share Growth

SCB X Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • The global economic growth is predicted to slow, with growth rates lower than expected, potentially impacting SCB X's revenue from international operations and investments.
  • The Thai economy's growth is expected to be moderate due to factors such as weak domestic demand, a high base in exports, and potential negative impacts from geopolitical tensions, impacting SCB X's domestic revenue and earnings.
  • Household debt issues remain a concern, which could pressure private consumption and the effectiveness of fiscal measures, thereby affecting SCB X's loan growth and credit quality.
  • The U.S. Federal Reserve's potentially fewer rate cuts than expected, along with other major central banks' divergent monetary policies, could lead to an uncertain interest rate environment impacting SCB X's net interest margins.
  • Increasing NPLs, especially in the SME, housing loan, and auto hire purchase segments, could pose risks to SCB X's asset quality and result in higher credit costs, affecting its net margins and profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of THB128.143 for SCB X based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of THB140.0, and the most bearish reporting a price target of just THB109.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be THB181.0 billion, earnings will come to THB50.5 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 9.1%.
  • Given the current share price of THB124.5, the analyst price target of THB128.14 is 2.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Read more narratives

Analyst Price Target Fair Value
฿128.1
3.6% undervalued intrinsic discount
Future estimation in
PastFuture0181b2014201720202023202520262028Revenue ฿181.0bEarnings ฿50.5b
% p.a.
Decrease
Increase
Current revenue growth rate
9.90%
Banks revenue growth rate
0.25%