- CIMB Group Holdings Bhd’s (CIMB) 93.7%-owned subsidiary CIMB Thai Bank plc (CIMB Thai) recorded lower net earnings of THB184mil (-58.2% QoQ, -20.1% YoY) in 2QFY14, due mainly to lower non-interest income (-38.4% QoQ). We estimate CIMB Thai’s contribution to group net earnings at 1.7% in 2QFY14 (1QFY14: 4.2%). Annualised net earnings came in 33% below our forecasts, due largely to the softer non-interest income line.

- Gross loans growth was better at 3.6% QoQ in 2QFY14, if compared to the more muted 0.5% QoQ level in 1QFY14. Net interest income increased 3.2% QoQ, largely underlined by strong loan expansion and early redemption of hybrid instruments. Deposit growth was also stronger at 4.3% QoQ in 2QFY14, in contrast to -0.3% QoQ in 1QFY14. Loan-to-deposit (LDR) ratio was higher though at 93.1% in 2QFY14 vs. 92.4% in 1QFY14.

- CIMB Thai said that net interest margin (NIM) had increased by 13bps HoH, to 3.35% in 1HFY14 if compared to 3.22% a year ago in 1HFY13. This implies a NIM of 3.43% in 2QFY14, a 16bps improvement QoQ vs. 3.27% in 1QFY14. CIMB Thai attributed the improvement to better control over costs of funds.

- Non-interest income continue to slide by 38.4% QoQ in 2QFY14, led mainly by a loss of THB 112.1mil in 2QFY14 (1QFY14: gain of THB44.7mil) on financial liabilities designated at fair value through profit and loss. We believe that these are related to the securities portfolio. Most of the core fee income lines also recorded marginal declines on a QoQ basis. However, on a full six months basis, the net fee and service income increased by 12.8% HoH, due mainly to improvement in advisory fees and security issue fees.

- Gross non-performing loans (NPL) recorded a marginal uptick of 2.2% QoQ to THB5.6bil although the rate of increase has slowed down when compared to 1QFY4’s +24.6% QoQ. Gross NPL ratio was stable at 3.1% in 2QFY14 (1QFY14: 3.1%). The company attributed the uptick to ongoing effects from economic slowdown and borrowers’ ability to repay. Recall that the earlier 1QFY14 increase came from certain retail segment, and certain sizeable corporate accounts. Credit cost is estimated at 98bps in 2QFY14, slightly better than the 107bps recorded in 1QFY14. Loan loss cover was stable at 100.8% in 2QFY14 (1QFY14: 100.6%).

- CIMB Thai’s 1QFY14’s results are positive in terms of NIM, but revenue lines remained soft, while there is no major improvement in asset quality. Maintain HOLD on CIMB. 

Source: AmeSecurities