• 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 9.1%. No changes to our earnings estimates for now.
• CIMB Thai recorded a net profit of THB774mil (or RM104mil) in 4Q19, a significant increase of 159.5% QoQ largely from a stronger total income and lower provisions. 12M19 saw the Thai subsidiary’s earnings improving to THB1.5bil or RM201mil compared to THB7mil in 12M18 underpinned by higher net interest income from loan expansion of 6.8%YoY and investments, stronger NOII and lower provisions, partially offset by increase in operating expenses.

• NOII for 12M19 grew 10.6%YoY attributed to higher gains from trading and FX transactions, recognition of gains from investments, gains from the 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 (-10.6%) for 12M19 as a rise in opex continued to outpace the growth in total income. Opex rose by 14.1% YoY attributed to higher personnel cost, coupled with higher compensation for retired and senior employees. CIMB Thai’s CI ratio climbed to 68.5% in 12M19 vs. 62.1% in 12M18.

• Provisions at CIMB Thai decreased by 48.7% YoY to THB2.5bil, consequently leading to an improved credit cost of 1.00% in 12M19 vs. 2.09% in 12M18. Total provisions remain at a comfortable level standing at THB10.5bil and are seen as conservative with an excess provisioning of THB4.9bil over the requirements of Bank of Thailand (BOT).

• CIMB Thai's NPL ratio was stable at 4.6%. The Thai subsidiary’s loan loss cover stood at 93.7%. Loan to deposit ratio for CIMB Thai improved slightly to 126.3% in 4Q19 due to a slowdown in loans growth to 6.8%YoY from 9.8%YoY in 3Q19.

• NIM contracted to 3.32% in 12M19 vs. 3.71% in 12M18 due to higher funding cost. Management hinted of a potential 1 rate cut for Thailand in 2020. Any rate cut will have a minimal impact on CIMB Thai’s margin as deposits in Thailand reprice at a faster pace compared to Malaysia.

Source: AmInvest Research - 22 Jan 2020