Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with unchanged earnings forecasts and fair value (FV) of RM6.90/share, pegging the stock to a P/BV of 1.0x based on FY24F ROE of 10.2%. No change to our neutral 3-star ESG rating.

• CIMB Group’s 94.8%-indirectly owned CIMB Thai recorded a 4Q23 net loss of THB131mil (-RM17.4mil) (>-100% QoQ), driven largely by a decline in net interest income (NII), higher overhead expenses (OPEX) and provisions. 4Q23 saw a stronger non-interest income (NOII) QoQ contributed by an increase in fair value gains on financial instruments measured through profit and loss.

• 12M23 net profit declined 44.9% YoY to THB1.6bil (RM212.8mil), attributed to increases in OPEX and allowances for loan losses. We expect earnings from CIMB Thai to contribute less than 10% of the group’s profit before tax (PBT) in FY23F.

• 12M23 total income was flattish at THB13.7bil (+1.3% YoY). NII was marginally higher by 1.7% YoY to THB9.8bil. Gross loans grew 4.1% YoY while NIM fell by 10bps YoY to 2.6% in 12M23, contributed by higher cost of funds. Meanwhile, NOII was subdued for 12M23 at THB4bil with higher gains on investments and sale of NPLs partially offset by weaker net fee and service as well as other operating income.

• As expected, the policy rate in Thailand was left unchanged at 2.5% was after the conclusion of the last monetary policy committee (MPC) meeting on 29 November 2023. Headline inflation of -0.83% as of December 2023 remains well within target of 1-3%. Meanwhile, core inflation rate stood at 0.58%.

• JAW was a negative 8.7% for the Thai Subsidiary in 12M23 with growth in OPEX (+10% YoY) outpacing total income (- 1.3% 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 62.7% in 12M23 vs. 57.7% in 12M22.

• Provisions at CIMB Thai climbed by 48.5% YoY to THB3.1bil, consequently leading to a higher credit cost of 1.3% in 12M23.

• CIMB Thai's gross NPL ratio was stable at 3.3%. Loan to deposit ratio for CIMB Thai stood at 95.2% while modified LD ratio was 78.9% in 12M23. The commercial loan portfolio in Thailand continues to be trimmed progressively to exit the business.

Source: AmInvest Research - 22 Jan 2024