- CIMB Group Holdings Bhd’s (CIMB) 93.15%-owned subsidiary CIMB Thai Bank plc (CIMB Thai) 1QFY13 net earnings more than doubled on a QoQ basis to THB313mil from THB156mil in 4QFY12, with a lower loan loss provision contributing to the bulk of the net earnings increase.

- Loans expanded 3.2% QoQ in 1QFY13 (4QFY12: 9.7% QoQ), attributed to retail loans growth. Deposit growth was flat at 0.5% QoQ in 1QFY13. LDR has consequently moved up to 99.7% in 1QFY13 from 95.0% in 4QFY12.

- NIM has improved on QoQ basis to 3.17% in 1QFY13, from 3.16% in 4QFY12, although on a YoY basis, there was a 6bps YoY decline. This was due to intense competition in the deposit segment. Despite this, it is positive that NIM was stable on a QoQ basis. There was an increase in non-interest income by 14.0% QoQ, attributed to an increase in corporate finance and advisory fees.

- Gross NPL was relatively unchanged at THB4bil in 1QFY13 compared with THB3.98bil in 4QFY12. With a higher loan base, this led to an improvement in gross NPL ratio to 2.6% in 1QFY13 from 2.8% in 4QFY12. The stable NPL was mainly due to more stringent credit risk assessments, effective risk management policies, improvements in loan collection processes and continued management of NPLs.

- While loan loss provision was lower on QoQ basis at THB213mil in 1QFY13 vs. THB327mil in 4QFY13 (with corresponding credit cost at 59bps (4QFY12: 96bps)), on the whole, loan loss provision is higher than normalised level of THB100mil to THB150mil per quarter (credit cost: 30bps to 50bps). This is probably due to efforts to raise the loan loss coverage ratio to 86.1% as at 31 March 2013 from 85.1% at the end of December 2012, led by a more conservative reserve policy.

- 1QFY13’s results indicate a slower loans growth, which is more than made up by noninterest income. NPL is stabilised, which is positive. We estimate that CIMB Thai contributed 2.6% of net earnings of CIMB Group in 1QFY13 based on our FY13 forecasts (4QFY12: 1.4%). Overall, CIMB Thai is still not a major contributor, but with rising noninterest income, this affirms our view that non-interest income for CIMB is likely to be higher than that implied at the current share price. We maintain BUY on CIMB.

Source: AmeSecurities