COMMENT

• CIMB Thai's 2Q18 net profit below expectations. CIMB Thai reported 2Q18 net profit of Bt191.2m, 15% below consensus estimate due to higher-than-expected opex while provisions remained elevated. However, we note that the spike in opex was due to lumpy oneoff loss on disposal of assets which is unlikely to recur. Excluding this one-off loss, earnings would have been in line with expectations, fuelled by a steady 5% growth in revenue. We expect CIMB Thai to contribute to 1.4% of CIMB Group’s earnings in 2018.
• Maintain BUY on CIMB Group (CIMB MK/BUY/RM5.80/Target: RM7.40). Despite the potential risk of a slower domestic corporate loan growth trend and weaker investment banking income in the near term given heightened capital market volatility, we think current valuations at below -1SD to its long-term mean PE and P/B have priced in the above earnings risks. We forecast an above-industry net profit growth of 16% for 2018, driven by a downward normalisation in credit cost to 56bp (2017: 76bp). The stock is trading at an attractive 10.3x 2018F PE (5-year historical mean of 13.3x) and 1.03x 2018F P/B (historical mean of 1.20x).

Source: UOB Kay Hian Research - 20 Jul 2018