• We maintain our BUY recommendation on CIMB Group with an unchanged fair value of RM6.00/share based on FY20 P/BV of 1.0x, supported by an ROE of 9.2%. No changes to our earnings estimates for now.
   
• CIMB Thai recorded a net profit of THB298mil (or RM41.1mil) in 3Q19, a significant increase of 184.1% QoQ largely from a stronger total income and lower provisions. 9M19 saw the Thai subsidiary’s earnings rising to THB728mil or RM100.5mil (+35.5% YoY) underpinned by higher net interest income from investments and loan expansion of 9.8% YoY (YTD annualized growth of 8.1%). Also, contributing to the improvement was higher non-interest income (NOII) and a decline in provisions, partially offset by an increase in operating expenses (opex).

• NOII for 9M19 grew 2.8% YoY attributed to higher gains from trading and FX transactions, recognition of gains from investments and sale of NPLs, coupled with higher net fee and service income, partially offset by losses on financial instruments at fair value through P&L (FVTPL).

• JAW remained negative for the Thai subsidiary (-15.7%) for 9M19 as the rise in opex continued to outpace growth in total income. Opex rose by 17.4% YoY attributed to higher general expenses, a rise in personnel cost in line with the Fast Forward strategy coupled with an increase in compensation for retired and senior employees. Owing to this, CIMB Thai’s CI ratio climbed to 68.8% in 9M19 vs. 59.7% in 9M18.

• Provisions at CIMB Thai decreased by 32.7% YoY to THB2.2bil, consequently leading to an improved credit cost of 1.20% in 9M19 vs. 1.95% in 9M18. This was within management’s guidance of 1.00% to 2.00% for FY19. Total provisions remained at a comfortable level, standing at THB10.9bil and is seen as conservative with an excess provisioning of THB5.1bil over the reserve requirements of Bank of Thailand (BoT).

• CIMB Thai's NPL ratio edged up slightly to 4.6% from 4.5% in the preceding quarter with slower repayments from certain corporate and retail loans. Arising from this, the Thai subsidiary’s loan loss cover slipped further to 98.0% in 3Q19 from 106.5%

• NIM contracted to 3.32% in 9M19 vs. 3.77% in 9M18 due to higher funding cost. BoT’s Monetary Policy Committee cut the policy rate by 25bps to 1.50% from 1.75% on 7 Aug 2019 and has maintained the rate at 1.50% at the recent meeting on 25 September 2019. The rate cut in Aug 2019 appears to have a minimal impact on CIMB Thai’s margin as deposits in Thailand are repriced at a faster pace compared to Malaysia.

• The group recently announced the appointment of Adisorn Sermchaiwong (Adisorn) as the president and CEO of CIMB Thai. Prior to this, Adisorn was the acting CEO of CIMB Thai.

Source: AmInvest Research - 23 Oct 2019