Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value (FV) of RM6.40/share pegging the stock to a FY23F P/BV of 1.0x based on a ROE of 10%. No change to our neutral 3-star ESG rating.

• We keep our earnings estimates unchanged.

• CIMB Group’s 94.8% indirectly-owned CIMB Thai recorded a weaker net profit of THB539mil (RM71mil) in 2Q23 (-35.1% QoQ) driven largely by a decline in non-interest income (NOII) and higher overhead expenses (OPEX). 2Q23 saw lower fair value, realised gains on investments and a decrease in gains from sales of NPLs.

• 6M23 net profit declined by 35.3% YoY to THB1.37bil (RM180mil) mainly on weaker NOII, higher OPEX and provisions. NOII in 6M23 was weighed down largely by lower net fees, service income and decline in fair value gains on investments. Fee income from brokerage services was lower YoY. We expect earnings from CIMB Thai to contribute to less than 10% of the group’s profit before tax (PBT) in FY23F.

• Net interest income grew by 4.6% YoY to THB4.9bil (+1.0%YoY) in 6M23, attributed to expansion in loan book. Gross loans expanded by 10.3% YoY to THB243bil. NIM fell by 10bps to 2.7% in 6M23 contributed by higher cost of funds.

• With core inflation in Thailand at 1.32% as at June 2023, well within the headline inflation target of 1%-3%, we do not expect any changes to policy interest rates in upcoming monetary policy committee (MPC) meetings. As of the last MPC meeting on 31 May 2023, the policy rate in Thailand was raised by 25bps to 2%. We expect this to be mildly positive to CIMB Thai’s NIM.

• JAW was negative 7.2% for the Thai subsidiary in 6M23 as the rise in total income (+0.7% YoY) was lower than growth in OPEX (+7.9% YoY). The increase in OPEX was driven largely by higher impairment losses on sale of properties. As a result, CIMB Thai’s CI ratio rose to 56.6% in 6M23 vs. 52.8% in 6M22.

• Provisions at CIMB Thai climbed by 94.2% YoY to THB1.38bil, consequently leading to a higher credit cost of 1.13% in 6M23.

• CIMB Thai's gross NPL ratio improved to 3.1% in 6M23 from 3.3% in 6M22 in line with portfolio recalibration initiatives to exit from the commercial banking business. Loan to deposit ratio for CIMB Thai stood at 103.3% while modified LD ratio was 83.8% in 6M23.

Source: AmInvest Research - 24 Jul 2023