• We maintain our HOLD recommendation on CIMB Group and an unchanged fair value of RM7.10/share for now pending the review of the group’s 1QFY18 results which are expected to be released on 30 May. Our fair value is based on FY18 P/BV of 1.3x, supported by an ROE of 10.5%. We make no change to our estimates.

• CIMB Group Holdings Bhd (CIMB) 93.7%-owned subsidiary, CIMB Thai, released its 1QFY18 results with a net profit of THB169mil (or RM21.0mil) which grew 39.3%YoY. The improved earnings were contributed by higher net interest income and noninterest income (NOII) coupled with lower provisions although partially offset by an increase in operating expenses (OPEX). For FY18, we continue to expect the subsidiary's earnings to contribute less than 5.0% of the group’s net profit, behind the PBT contributions of Indonesia and Singapore.

• CIMB Thai reported a negative JAW in 1QFY18. Total income growth of 8.1%YoY was lower than its growth in OPEX of 10.6%YoY. The increase in OPEX was contributed by expenses from properties for sale and higher personnel cost despite lower expenses from premises and equipment. This led to a higher CI ratio for CIMB Thai of 57.2% in 1QFY18 vs. 55.8% in 1QFY17.

• 1QFY18 saw CIMB Thai’s provisions still at an elevated level. Nevertheless, these have declined 12.4%QoQ to THB1.18bil, consequently lowering its credit cost to 2.16% in 1QFY18 compared to 2.46% in 4QFY17 and 2.38% in 1QFY17.

• CIMB Thai's NPL ratio rose to 5.2% from 4.8% in the preceding quarter. Recall that in 4QFY17, its NPL ratio declined due to the sale of NPLs. The subsidiary’s loan loss cover slipped slightly to 92.3% in 1QFY18 vs. 93.2% in 4QFY17. Compared to the previous quarter, its loan-to-deposit ratio was marginally higher at 124.8% with a slower deposit growth compared to loans while its modified LD ratio inched up to 97.4% in 1QFY18.

• Gross loan growth for the Thai subsidiary was modest at 5.1%YoY. On a QoQ basis, CIMB Thai’s loans on gross basis contracted by 0.5%.

• NIM saw an improvement by 21bps YoY or 6bps QoQ to 3.98% in 1QFY18. This was due to a more efficient management of funding cost. We believe that this has been contributed by the deliberate strategy to trim its expensive deposits as seen by the decline in its customer deposits by 4.0%YoY.

• For 1QFY18, NOII expanded by 17.9%YoY. This was due to higher net fee and service income of 11.1%YoY as a result of higher fees from insurance, hire purchase and mutual funds. Also, contributing to the increase were gains in financial liabilities and other operating income from sale of AFS securities.

Source: AmInvest Research - 20 Apr 2018