Taking Initiative on Digitalization Is Key for Valuation Unlocking

The banking sector has emerged from one of the worst performers in the stock market during the Covid-19 crisis in early 2020 to the point of just a step or two below the pre-Covid level following gradual reopening and economic recovery in Thailand. 

The Covid-19 pandemic that plummets the global economy weighs heavily on the country relying on tourism for its growth like Thailand. Once the economy starts crumbling, banks are the most likely to take impact on lower transactions, near-zero policy rates, higher provision and defaults.  

As the Thailand reopening draws near, the banking sector shows signs of recovering, and will rise and shine once the reopening starts to drive the Thai economy forward.

One key milestone that is currently driving the banking sector is a possibility of expanding into a digitized platform to create a new S-curve and transform the business from the same old banking services to a wide range of digital services just like what The Siam Commercial Bank Public Company Limited (SCB) is expecting to achieve. 

 

J.P. Morgan has a positive view on the transformation to technology, indicating that technology is the key to valuations and raising SCB as its top pick. 

J.P. Morgan stated that SCB’s reorganization is a marker of broader shifts in the industry as traditional lending and deposit gathering has become a low-return business that may not sustain over the next 3-5 years and will likely trade at low multiples, unless unlocking new capabilities.

Additionally, SCB’s work with regulators should allow other banks to unlock value as well. J.P. Morgan expects Kasikornbank Public Company Limited (KBANK)’s subsidiaries; KAsset, KSecurities and KLeasing to stand out as scale players in respective segments. Meanwhile, TNBThanachart Bank Public Company Limited (TTB) is expecting a digital overhaul by early next year, according to the management.