Oppday Q1/2023 บริษัท เอสซีบี เอกซ์ จำกัด (มหาชน) SCB

SCBX Presentation at SCT Opportunity Day - Q1 2023

Introduction to SCBX and the Event

• The presentation begins with a welcome from Manop Sibutr, CFO of SCBX, introducing the company at the SCT Opportunity Day for Q1 2023.

• Nuntana Taweeratnisit from Age of Art Capital Market expresses excitement about meeting investors after SCBX's restructuring into an Investment Holding Company.

Rationale Behind SCBX's Stock Potential

• Manop emphasizes that SCBX shares have strong fundamentals and potential for profitable growth, alongside high dividends relative to current stock prices.

• He reflects on his 11-year tenure with SCB, noting historical trading values and ROE (Return on Equity), which has decreased due to economic changes and technological disruptions.

Structural Changes and Future Goals

• The need for restructuring is highlighted to improve ROE back to approximately 13-15% in the medium to long term, as current ROE is below 10%.

• The new structure aims to enhance operational agility and align with their vision of becoming a leading financial technology company in the region.

Organizational Structure Overview

• The presentation outlines that SCBX now serves as the parent company overseeing both commercial banking and non-banking businesses.

• This new structure allows for better management flexibility, enabling distinct strategies for banking versus non-banking operations.

Cultural Shift within the Organization

• A cultural transformation is underway where employees are encouraged to think more like owners, linking incentives directly to business value creation.

• Transparency in performance metrics across different business units will allow investors to assess profitability and asset management effectively.

Business Segments Breakdown

• The organizational structure consists of three main groups:

• Gen 1: Traditional commercial banking remains crucial for revenue generation.

• Gen 2: Emerging businesses expected to contribute significantly over time (10%-15% profit contribution).

• Gen 3: New ventures anticipated to transition from losses towards profitability in the medium term.

Focus on Digital Lending Initiatives

• Gen 2 includes digital lending services targeting consumers without collateral through fully digital channels.

• Key companies under this segment include CX X (credit card management), focusing on personal loans transferred from banks, indicating growth opportunities ahead.

Financial Inclusion and Business Development in Gen 2

Overview of Target Customers

• The focus is on customers who previously lacked access to commercial bank loans, particularly those with medium to low incomes. This demographic represents a significant opportunity for growth within the Gen 2 business model.

• The design of Gen 2 businesses aligns with the concept of financial inclusion, addressing the major issue of limited access to banking services.

Interest Rates and Customer Segmentation

• Company X targets consumers with an average interest rate of around 15%, focusing on those who are close to being bankable but still face barriers.

• Another company, Company A, charges interest rates starting at 20%, catering to lower-income clients who have historically been unable to access banks.

Addressing Financial Needs

• Two additional companies, Manix and Abu, charge interest rates above 33%, targeting customers completely excluded from traditional banking services. This approach aims to meet the financial needs of underserved populations.

Future Business Models: Gen 3 and Technological Integration

Highlighting Key Companies

• The presentation emphasizes two key companies in Gen 3: Robin Hood and Purple Venture. These platforms aim to leverage data and AI for improved service efficiency.

• SCB Easy is mentioned as a primary mobile banking app with over 15 million users focused mainly on financial transactions.

Expanding Service Offerings

• Robin Hood plans to expand beyond food delivery into other daily life services like travel bookings and taxi hailing, aiming for comprehensive customer engagement.

Investment Strategies and Performance Metrics

SCB 10X's Role in Global Investments

• SCB 10X serves as an investment arm focusing on global technology startups, having invested approximately THB 20 billion over several years with consistent returns exceeding 20%.

Proactive Management Approach

• SMX operates as a holding company managing resources actively rather than passively overseeing subsidiaries across different generations (Gen 1, Gen 2, Gen 3).

Risk Management and Future Opportunities

Governance and Risk Assessment

• The transition from traditional banking structures has led to clearer governance practices and enhanced risk assessment capabilities across various business units.

Climate Tech Initiatives

• There is a growing focus on climate tech opportunities related to net-zero policies. SCBX aims not only for compliance by 2050 but also seeks investment opportunities that facilitate this transition for clients.

This structured summary captures the essence of discussions regarding financial inclusion strategies through innovative business models while highlighting future growth areas within technology integration and sustainability efforts.

Technology Integration in Business Growth

Vision for Future Growth

• The company aims to blend traditional and new business models, establishing a robust structure that supports future growth aligned with its vision of becoming a technology-driven firm.

• Emphasis on utilizing AI data analytics to enhance various business operations, indicating a commitment to technological advancement.

Introduction of Tech Accelerators

• Introduction of two companies, Data X and Tech X, as part of the tech accelerator initiative aimed at enhancing service delivery within the group.

• Data X will provide AI data services across all companies in the group, ensuring compliance with customer consent laws while creating comprehensive customer insights.

Efficiency through Shared Resources

• The structure allows member companies to avoid redundant hiring of analysts or data scientists by centralizing data management under Data X.

• Tech X serves as a system developer for the group, enabling subsidiaries to develop their applications efficiently without incurring unnecessary costs.

Profit Growth Opportunities for SCBX Group

Stable Profit Growth from Banking Sector

• The banking segment (Gen 1) is expected to achieve stable and consistent profit growth over the next three years, forming the backbone of SCBX's profitability.

• Increased interest income due to rising policy rates is highlighted as a key driver for bank profitability.

Enhancing Loan Performance

• Focus on improving loan performance efficiency rather than merely increasing loan volume; this approach aims at maximizing returns relative to risk taken.

• A selective growth strategy allows banks to prioritize profitable loans while managing risks effectively.

Future Interest Rate Expectations

• Anticipation of further interest rate hikes by monetary authorities could lead to increased interest income in upcoming quarters.

Revenue Streams Beyond Traditional Banking

Fee Income from Insurance and Wealth Management

• Significant potential identified in fee income from insurance sales (Bank Assurance) and wealth management services as primary revenue drivers moving forward.

Market Leadership in Insurance Products

• Thai Commercial Bank holds the top market share in Bank Assurance products, indicating strong competitive positioning and growth potential in this sector.

Digital Wealth Strategy Implementation

• Launching digital wealth management strategies aimed at expanding product offerings through digital channels reflects an adaptive approach towards changing consumer preferences.

This structured summary captures key insights from the transcript while providing timestamps for easy reference.

Overview of Transactional Banking Revenue

Importance of Transactional Banking Fees

• The bank generates significant revenue from transactional banking fees, which customers pay for various financial transaction services.

• Following the country's opening last year, there has been an increase in spending and financial transactions, indicating a positive trend for fee income growth.

Cost Management and Efficiency

• Thai Commercial Bank focuses on sustainable growth rather than just expansion, allowing it to reduce service costs and improve cost structure efficiency.

• The bank's cost-to-income ratio fell below 40% in Q1, with a medium-term goal to maintain this level.

Growth Strategies for Gen 2 Business Units

Performance of CX and Auto X

• CX is one of the flagship companies under Gen 2, currently managing a substantial loan portfolio exceeding 100 billion THB.

• The growth strategy involves enhancing debt collection efficiency and utilizing AI data for underwriting processes.

Auto X Development

• Despite being a new venture launched only nine months ago, Auto X has already disbursed loans amounting to over 12 billion THB.

• Projections indicate that Auto X aims to reach a loan volume of 35 billion THB within the year while achieving profitability within 1-2 years.

Future Contributions from Gen 2 and Gen 3 Businesses

Profit Contribution Expectations

• In three years, Gen 2 businesses are expected to contribute significantly to net profit—projected at around 10-15%, up from nearly zero last year.

Expansion into New Ventures

• The Robin Hood platform has grown its customer base to nearly four million users, moving towards profitability without relying heavily on subsidies.

New Business Initiatives

Taxi Service Launch Plans

• A new taxi-hailing business is set to launch in Q3 after receiving regulatory approval; it will focus on immediate profitability without initial subsidies.

Financial Outlook for Gen 3 Businesses

• Investments in Gen 3 businesses are expected to result in reduced losses compared to previous years as they approach break-even by approximately 2026.

Financial Strength and Future Opportunities

Strong Capital Position

• SCBX holds over THB 800 billion in cash reserves with a capital adequacy ratio exceeding 19%, indicating robust financial health among major Thai banks.

Growth Potential

• With high liquidity and strong capital ratios (CET1 above 18%), SCBX is well-positioned for significant growth opportunities over the next few years.

Investment Strategies and Opportunities in M&A

Focus on Profitable Acquisitions

• The company aims to increase its capital and is actively seeking opportunities for mergers and acquisitions (M&A). The focus is on acquiring businesses that can generate immediate profits rather than those currently operating at a loss.

Limitations in Investment Choices

• While there are some limitations in selecting investment opportunities, the company believes these do not completely hinder their chances. Notably, they will avoid investing in commercial banks.

Regional Expansion Plans

• The company is looking beyond Thailand for growth opportunities, particularly targeting markets in ASEAN such as Indonesia and Vietnam. They emphasize that potential investments must be profitable and capable of expanding their customer base.

Dividend Growth Potential

• Investors can expect profit growth along with the possibility of special bonus dividends if new business ventures or acquisitions are successful. Last year's dividend payout was 60% of net profit, translating to approximately 6.69 baht per share.

Efficient Capital Management

• Despite a stated dividend policy of 30%, the company anticipates maintaining high dividend payouts due to effective capital management strategies. This includes optimizing their fund utilization while ensuring attractive returns for investors.

Governance and Risk Management

• The company's governance practices are described as world-class, focusing on risk management to ensure both growth and consistent dividend payments for investors.

Stock Performance Concerns

• There have been inquiries regarding stagnant stock prices despite strong fundamentals. Over the past year, SCB X's stock price remained stable while market indices declined by about 6%.

Credit Quality Risks Explained

• Concerns about credit quality within Thai banks were addressed, highlighting measures taken to restructure loans for clients facing difficulties. Approximately 12% of total loans are under this restructuring program.

Positive Client Performance Indicators

• More than half of clients benefiting from loan assistance programs have shown better-than-expected performance, especially among hotel businesses and SMEs.

Managing Retail Client Risks

• Although retail clients present some risks, the company believes these can be managed effectively through established buffers within their provisions.

Cost Structure Adjustments

• Increased costs from restructuring efforts have already been accounted for last year; thus, no similar expenses are expected this year. The target cost-to-income ratio is set at around 45%.

Digital Asset Strategy Clarification

• SCBX does not invest directly in digital assets but focuses on building infrastructure to support digital asset services without exposure to market volatility associated with these assets.

Investment Opportunities in SCBX Stocks and Bonds

Overview of SCBX Stock Investment

• The speaker emphasizes that investing in SCBX stocks is a promising opportunity, highlighting the company's potential for growth.

• A new bond issuance by SCBX is announced, marking the first time they are offering bonds to the public. The bonds will have a duration of 4 years with an interest rate of 3.11%.

Bond Purchase Details

• Investors can start booking these bonds on the 21st of this month at 8:30 AM exclusively through the Easy SCB EC App.

• The speaker encourages investors to prepare their accounts on the app to facilitate their participation in this investment opportunity.

Financial Performance Insights

• A question arises regarding the expected financial performance for Q2, with expectations set for improvement compared to Q1 and the same period last year.

• Although Q2 has not concluded yet, there is confidence in steady growth due to favorable business structure and market conditions.

Market Trends and Revenue Projections

• The speaker notes that overall market conditions suggest increased bank revenues due to rising policy interest rates, which should positively impact interest income.

• They project a minimum revenue growth target of 10% for the year if cost management remains effective.

Strategic Business Adjustments

• Clarification is provided regarding the permanent cancellation of investments in ID Cup, indicating readiness to adapt business strategies based on changing circumstances.

• Future mergers and acquisitions (M&A) will focus on enhancing technology capabilities rather than direct investments in cryptocurrency assets due to current market volatility.