- CIMB Group Holdings Bhd’s (CIMB) 93.7%-owned subsidiary CIMB Thai Bank plc (CIMB Thai) posted net earnings of THB89mil or a large 67.0% QoQ drop, mainly due to a large increase in loan loss provisioning. Its net earnings contribution to the group earnings is estimated at about 0.8% in 4QFY14 (3QFY14: 3.2%).

- Gross non-performing loans (NPL) continued to increase by 6.7% QoQ to THB6.4bil, from THB6bil but the gross NPL ratio had stabilised and was unchanged at 3.3% in 4QFY14 (3QFY14). The increase in NPL is attributed to economic and political disruptions that affected borrowers’ repayment ability.

- As mentioned earlier, loan loss provision had moved up by 43.5% on a QoQ basis, leading to higher credit costs of 150bps in 4QFY14 if compared to 108bps in 3QFY14. However, the good news is that loan loss cover has been strengthened to 95.2% in 4QFY14 from 94.5% in 3QFY14.

- The company posted loans growth of 3.8% QoQ and 10.6% YoY, but also experienced a much stronger deposit growth of 10.9% QoQ and 20.9% YoY. This led to gross loanto-deposit ratio (LDR) easing off significantly to 106% in 4QFY14, from 113% in 3QFY14.

- More importantly, despite the increase in deposits, net interest margin (NIM) had improved by 2bps QoQ to 3.40% in 4QFY14, from 3.38% in 3QFY14. NIM thus averaged at 3.37% in FY14, or a sizeable 19bps YoY improvement from 3.18% in FY13. The company said that the improvement mainly came from better management of costs.

- All in, CIMB Thai’s 3Q results indicate some significant signs of stabilisation, given that gross NPL is not much worse off. We are also positive that while there were higher credit costs and loan loss provisioning, these had led to an increase in loan loss cover as well. The NIM improvement is positive given the rise in deposit base.

- Thus, although CIMB Thai is still not a major contributor, we like the signs of stabilisation in the latest set of results. We think that CIMB’s share price should rerate further once its other major regional contributor CIMB Niaga starts to stabilise as well.

Source: AmeSecurities