Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with unchanged forecasts and fair value (FV) of RM6.60/share, pegging the stock to a P/BV of 1.0x based on FY24F ROE of 10%. No change to our neutral 3-star ESG rating.

• CIMB Group’s 94.8%-indirectly owned CIMB Thai recorded a weaker 3Q23 net profit of THB367mil (RM47.9mil) (-31.8% QoQ), driven largely by declines in interest income (NII) and non-interest income (NOII) coupled with higher overhead expenses (OPEX). 3Q23 saw lower NOII contributed by fair value losses on financial instruments as well as reduced net fee and service income.

• 9M23 net profit declined by 38.2% YoY to THB1.74bil (RM226.9mil), driven by weaker NOII as well as higher OPEX and provisions. The decline in 9M23 NOII was due to lower net fee, service income, fair value gains on investments and other operating income. We continue to expect earnings from CIMB Thai to contribute less than 10% of the group’s profit before tax (PBT) in FY23F.

• NII rose by 3.9% YoY to THB7.4bil in 9M23, attributed to an expansion in loan book. Gross loans expanded by 11.3% YoY to THB249bil. NIM fell by 10bps YoY to 2.6% in 9M23, contributed by higher cost of funds.

• Thus far, the policy rate in Thailand has been raised by 200bps cumulatively since Aug 2022. The latest rate hike of 25bps to 2.5% was after the conclusion of the monetary policy committee (MPC) meeting on 27 September 2023. Core inflation in Thailand has eased to 0.63% in Sept 2023 vs. 1.32% as at June 2023, below the headline inflation target of 1%-3% for 2023. Hence, we expect the policy rate to remain unchanged at 2.5% at the next MPC meeting on 29 Nov 2023. Interest rate hikes are mildly positive on CIMB Thai’s NIM.

• JAW was a negative 13.4% for the Thai Subsidiary in 9M23 with growth in OPEX (+9.7% YoY) outpacing total income (- 3.6% YoY). The increase in OPEX was driven largely by higher impairment losses on sale of properties, taxes and duties. CIMB Thai’s CI ratio rose to 60.6% in 9M23 vs. 53.2% in 9M22.

• Provisions at CIMB Thai rose by 26.6% YoY to THB1.88bil, consequently leading to a higher credit cost of 1% in 9M23.

• CIMB Thai's gross NPL ratio declined to 3.2% in 9M23 from 3.4% in 9M22, reflecting the positive outcome from ongoing recalibration initiatives to run down its portfolio of commercial banking loans. Also, the Thai subsidiary has continued to manage its asset quality by disposing NPLs. Loan to deposit ratio for CIMB Thai stood at 100.4% while modified LD ratio was 83.6% in 9M23.

Source: AmInvest Research - 23 Oct 2023