• We maintain our BUY recommendation on CIMB Group with an unchanged fair value of RM5.80/share. Our fair value is based on FY19 P/BV of 1.0x, supported by an ROE of 9.4%. Valuation of the stock is compelling at 0.9x FY19 P/BV. We believe concerns on the group’s weaker revenue and the lower ROEs for FY19 and FY20 as a result of investment expenses ahead for the Forward 23 strategy have been priced in. We make no changes to our earnings estimates.

• CIMB Thai released its 1QFY19 results with net profit of THB325mil (or RM42.2mil) which grew 92.4%YoY. The improvement was driven by higher net interest income from a strong loan expansion of 10.0%YoY and decline in provisions, partially offset by higher operating expenses.

• Non-interest income was flat at 0.3%YoY due to losses on financial instruments at FVTPL which offset higher gains on trading and FX transactions as well as gains from sale of NPLs of THB169mil.

• The Thai subsidiary continued to report negative JAW (-4.8%) in 1QFY19 as growth in opex outpaced total income. The rise in opex of 8.2%YoY was attributed to higher personnel cost as well as premises and equipment expenses. This led to a higher CI ratio of 59.8% for CIMB Thai.

• Provisions at CIMB Thai fell by 17.4%YoY to THB971mil resulting in an improved credit cost of 1.62% in 1QFY19 vs. 2.16% in 1QFY18 which was in line with management’s guidance of 1.00% to 2.00% for FY19.

• CIMB Thai's NPL ratio remained stable at 4.3%. The Thai subsidiary’s loan loss cover continued to improve to 109.5%. Loan-to-deposit ratio for CIMB Thai inched higher to 127.7% in 1QFY19 vs. 127.2% in 4QFY18 while its modified LD ratio climbed to 98.3%.

• Gross loan growth for the Thai subsidiary accelerated to 10.0%YoY in 1QFY19 vs. 7.7%YoY in 4QFY18. On a QoQ basis, CIMB Thai’s gross loans grew 1.6%.

• NIM contracted to 3.31% in 1QFY19 vs. 3.98% in 1QFY18 due to higher funding cost. On 19 Dec 2018, Bank of Thailand raised interest rate by 0.25% to 1.75%. We expect interest rates in Thailand to be unchanged at 1.75% for the rest of 2019.

Source: AmInvest Research - 19 Apr 2019