• We maintain our HOLD recommendation on CIMB Group with an unchanged fair value of RM6.30/share. Our fair value is based on FY19 P/BV of 1.1x, supported by an ROE of 10.1%. Our earnings projection for CIMB Group remain unchanged.

• CIMB Group Holdings 93.7%-owned subsidiary, CIMB Thai released its 3QFY18 results with a lower net profit of THB177mil (or RM22.7mil) which decreased by 7.3%QoQ. This led to a 9MFY18 net profit of THB537mil (RM68.6mil). Cumulative earnings fell by 3.1%YoY despite recording lower provisions. This was largely contributed by a decline in NOII with higher operating expenses (opex).

• The Thai subsidiary reported a negative JAW of 8.3% in 9MFY18. Total income growth of 2.5%YoY was lower than that of its opex of 10.8%YoY. The increase in opex was due to higher personnel cost and losses on the sale of properties. This led to a higher CI ratio for CIMB Thai of 59.7% in 9MFY18 vs. 55.2% in 9MFY17.

• CIMB Thai’s provisions declined by 10.3%YoY to THB3.33bil. Credit cost for CIMB Thai improved to 1.95% for 9MFY18 vs. 2.30% in 9MFY17.

• CIMB Thai's NPL ratio was slightly lower at 5.7% in 3QFY18 compared to 5.8% in 2QFY18 (1QFY18: 5.2%; 4QFY17: 4.8%). Its NPL ratio was higher compared to 4QFY17 attributed to NPLs of commercial banking loans as well as the non-reoccurrence of sale of NPLs. Correspondingly, the Thai subsidiary’s loan loss cover improved to 94.1% from 90.1% in 2QFY18 and 92.3% in 1QFY18. Loan-to-deposit ratio for CIMB Thai slid to 123.4% in 3QFY18 vs. 126.4% in 2QFY18 while its modified LD ratio slipped to 95.0%.

• Gross loan growth for the Thai subsidiary slowed down to 5.8%YoY vs. 6.3%YoY in 2QFY18. On a QoQ basis, CIMB Thai’s loans on gross basis grew 2.1%.

• NIM contracted 11bps YoY to 3.77% in 9MFY18 due to lower asset yield. In the recent MPC meeting on 19 September 2018, Bank of Thailand has kept its policy rate unchanged at 1.5%. We expect the central bank to maintain the rate at 1.5% for the remainder of 2018. The next MPC meeting is on 14 November 2018.

• For 9MFY18, NOII shrank by 4.1%YoY. This was due to a lower net fee and service income by 2.4%YoY. Also contributing to the decline was substantially lower gains on trading and FX transactions by 92.9%YoY.

• Separately, CIMB Group has appointed Datuk Mohd Nasir Ahmad, currently the senior independent director and chairman of the audit committee, to take over from Datuk Seri Nazir Razak as the chairman of CIMB Group. This will be effective on 20 October 2018.

Source: AmInvest Research - 22 Oct 2018