• We maintain our HOLD recommendation on CIMB Group with an unchanged fair value of RM4.00/share based on FY20 P/BV of 0.7x, supported by an ROE of 7.6%. We have factored in a higher credit cost for FY20 of 0.60% vs. management’s guidance of 0.40–0.50%. We make no changes to our earnings estimates for now.

• CIMB Thai, a 94.83% indirectly held subsidiary of CIMB Group, recorded a higher net profit of THB1.08bil (or RM146mil) in 1Q20, an increase of 144.3% YoY largely from stronger non-interest income and lower provisions.

• Net interest income was flat at THB2.83bil (-0.1% YoY) despite a gross loan growth of 6.2% YoY to THB245.3bil. Meanwhile, NIM declined to 3.31% in 1Q20 compared to 3.45% in 1Q19. This has been contributed by the two consecutive rate cuts totalling 50bps in Thailand in 1Q20 (25bps in Feb and another 25bps in Mar 2020 to 0.75%). Also, the decline was attributed to the change in loan mix towards higher quality loan borrowers which reduced the Thai subsidiary’s asset yield. Our house economist expects another rate cut in Thailand of 25bps to 0.50% in 2020. This could still put some mild pressure on CIMB Thai’s interest margins ahead. However, the impact on margins from rate cuts will be milder in Thailand than Malaysia due to the latter’s longer tenure for deposits.

• NOII for 1Q20 grew 76.7% YoY attributed to higher fair value gains from financial instruments, recognition of gains from investments and other operating income partially offset by lower net fee and service income and the absence of gains from sale of NPLs.

• JAW was negative for the Thai subsidiary (-3.6%) for 1Q20 as the rise in opex (+20.5% YoY) outpaced growth in total income (+16.8% YoY). CIMB Thai’s CI ratio remained elevated at 58.0% in 1Q20 vs. 56.3% in 1Q19.

• Provisions at CIMB Thai decreased by 38.8% YoY to THB616mil consequently leading to an improved credit cost of 1.00% in 1Q20 vs. 1.74% in 1Q19. CIMB Thai has adopted FRS 9 on 1 January 2020.

• CIMB Thai's NPL ratio was higher at 5.8% in 1Q20 partly as there was no sale of NPLs in the quarter. The loan-to-deposit ratio for CIMB Thai improved to 115.5% while the modified LD ratio stood at 90.6% in 1Q20.

• The Edge website reported that the group has an exposure of US$120–130mil to Hin Leong, an oil trader in Singapore that has defaulted on its bank borrowings. The group has organized a conference call for analysts on 28 April (Tuesday) for updates on the group. We hope to get better clarity on this exposure from the meeting.

Source: AmInvest Research - 22 Apr 2020