- CIMB Group Holdings Bhd’s (CIMB) 93.15%-owned subsidiary CIMB Thai Bank plc (CIMB Thai) 2QFY13 net earnings decreased by 26.3% QoQ to THB231mil from THB313mil in 1QFY13, due mainly to higher loan loss provision.

- Loans growth was strong at 5.6% QoQ in 2QFY13 and 8.8% HoH, underpinned by retail loans growth. Deposit growth came in slower at 2.1% QoQ in 2QFY13. This led to higher LDR of 103.3% in 2QFY13 from 99.7% in 1QFY13.

- NIM has improved slightly to an estimated 3.22% in 2QFY13 from 3.17% in 1QFY13, which is likely due to higher LDR utilisation. Non-interest income came off by -3.2% QoQ in 2QFY12, but is still relatively strong given that there was a substantial 14.0% QoQ jump in the previous 1QFY13. The non-interest income was underlined by improvement in in corporate finance and advisory fees.

- Gross NPL recorded an uptick of 7.5% QoQ to THB4.3bil in 2QFY13 from THB4bil in 1QFY13. Gross NPL ratio was correspondingly higher at 2.8% in 2QFY13 from 2.6% in 1QFY13.

- This led to higher loan loss provision overall at THB276mil in 2QFY13, a 29.4% QoQ increase compared to THB213mil in 1QFY13. Credit costs was therefore higher at 73bps in 2QFY13 vs. 59bps in 1QFY13.

- CIMB Thai said the increase in provisions is reflective of its cautious stance in the event of possible changes in the economic environment. Loan loss coverage ratio has declined to 83.1% in 2QFY13 from 86.1% in 1QFY13.

- 2QFY13’s results indicate stronger loans growth, but also an unexpected uptick in NPLs. We estimate that CIMB Thai contributed 2.2% of net earnings of CIMB Group in 2QFY13 based on our FY13 forecasts (1QFY13: 2.4%). CIMB Thai is still not a major contributor, which means that impact to share price will likely continue to be neutral. Maintain HOLD on CIMB.

Source: AmeSecurities