• We maintain our BUY recommendation on CIMB Group and a fair value of RM6.60/share for now pending management’s guidance for FY18. Our fair value is based on FY18 P/BV of 1.2x, supported by an ROE of 10.5%. We are keeping our forecast unchanged.

• CIMB Group Holdings Bhd (CIMB) 93.7%-owned subsidiary CIMB Thai reported a net loss of THB170mil (or RM21.1mil) in 4QFY17. The decline in earnings (-321.5%QoQ) was contributed by lower net interest income, decline in non-interest income (NOII) largely due to a drop in gains from trading and FX transactions, and higher operating expenses (opex). Nevertheless, for the full 12MFY17, earnings of CIMB Thai returned to black, driven mainly by lower provisions. The Thai subsidiary registered a net profit of THB385mil or RM47.7mil (+161.1%YoY) for FY17 compared to a loss THB630mil in FY16 which was dragged by a significantly high provisions taken in 4QFY16. The subsidiary's earnings are expected to contribute minimally to the group's profits in FY17 (<5.0%).

• 12MFY17 total income grew modestly by 1.8%YoY while opex rose by 2.6%YoY. The increase in opex was underpinned by one-off business rationalisation expenses in closing down its branches and credit cards business in Thailand. This led to a higher CI ratio for CIMB Thai of 57.9% in FY17 vs. 57.4% in FY16. Excluding the oneoff expenses, the FY17 CI ratio would be lower at 56.9%, an improvement of 50bps YoY.

• On the positives, provisions were stable QoQ and were lower by 19.5%YoY to THB5.1bil in 12MFY17. This resulted in a lower credit cost of 2.31% in FY17, an improvement from 2.96% in FY16.

• CIMB Thai's NPL ratio improved to 4.8% in FY17 compared to 6.1% in FY16, contributed by the sale of NPLs in the financial year, the focus on asset quality and loan collection. Its loan loss cover has strengthened to 93.2% in FY17 vs. 77.3% in FY16. The Thai subsidiary's loan-to-deposit ratio remained stable at 123.2% as at the end of FY17 while its modified LD ratio was 96.8%. Gross loan growth for the subsidiary picked up pace with a growth of 1.9%QoQin 4QFY17. For the 12MFY17, its loan growth was 3.1%YoY, behind its target of 5-10%.

• FY17 NIM saw an improvement by 12bps YoY to 3.89% (FY16: 3.77%) due to a more efficient management of funding cost.

• For FY17, non-interest income (NOII) slipped 3.6%YoY. This was due to lower gains on investments and higher losses on financial liabilities which offset an increase in net fee and service income from mutual funds, corporate finance and HP as well as higher gains on trading and FX transactions.

Source: AmInvest Research - 19 Jan 2018