• 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 9.7%. Our earnings estimates are unchanged.

• CIMB Group Holdings 93.7%-owned subsidiary, CIMB Thai released its 4QFY18 results with a net loss of THB530mil (or RM68.1mil) compared with a net profit of THB177mil in 3QFY18. This was largely due to higher operating expenses and increase in provisions for losses. We understand that the Bank of Thailand (BoT) has directed banks to raise provisions prior to the implementation of the FRS 9. This is to smoothen the impact for the implementation of the FRS 9 for Thai banks in 2020. The increase in provisions will have an impact only at CIMB Thai’s level. It will not have any impact on the financials of the group on a consolidated basis. Recall, domestically, the FRS 9 has been already been implemented in 2019.

• Cumulatively for 12MFY18, net profit was THB7mil (RM0.8mil). Earnings fell by 98.2%YoY attributed to higher opex and provisions despite a modest growth in total income.

• The Thai subsidiary reported a negative JAW of 6.7% in 12MFY18. Total income growth of 2.9%YoY was lower than that of its opex of 9.6%YoY. The increase in opex was largely due to higher personnel cost, premises and equipment expenses as well as losses on the sale of properties. This led to a higher CI ratio for CIMB Thai of 61.7% in 12MFY18 vs. 57.9% in 12MFY17.

• CIMB Thai’s provisions declined by 2.6%YoY to THB4.9bil for 12MFY18 despite a significant increase in allowances for losses in 4QFY18. Credit cost for CIMB Thai improved to 2.09% for 12MFY18 vs. 2.36% in 12MFY17.

• CIMB Thai's NPL ratio fell to 4.3% in 4QFY18 vs. 5.7% in 3QFY18 (1QFY18: 5.2%; 4QFY17: 4.8%) owing to the sale of a mixed portfolio of NPLs which resulted in a gain of RM226.3mil in the quarter. Correspondingly, the Thai subsidiary’s loan loss cover improved to 107.0%. Loan-to-deposit ratio for CIMB Thai rose slightly to 127.2% in 4QFY18 vs. 123.4% in 3QFY18 due to a stronger loan growth while its modified LD ratio climbed to 97.2%.

• Gross loan growth for the Thai subsidiary accelerated to 7.7%YoY in 4QFY18 vs. 5.8%YoY in 3QFY18. On a QoQ basis, CIMB Thai’s loans on gross basis grew 3.7%.

• NIM contracted 18bps YoY to 3.71% in 12MFY18 due to lower asset yield. On 19 Dec 2018, Bank of Thailand raised interest rates by 0.25% to 1.75%. This is expected to have a slight positive impact on CIMB Thai’s NIM’s moving into 1QFY19 as lending rates will be repriced ahead of deposits. Generally, the term structure of deposits is shorter in Thailand than Malaysia. We are expecting interest rates in Thailand to be unchanged moving forward despite market expectation of another rate hike of 25bps in 2019.

Source: AmInvest Research - 16 Jan 2019