- CIMB Group Holdings Bhd’s (CIMB) 93.7%-owned subsidiary CIMB Thai Bank plc (CIMB Thai) recorded a significant sequential improvement with net earnings more than doubling to THB498mil (or estimated RM51mil in Ringgit terms) in 3QFY15, albeit from a low base of THB217.6mil (or RM24.1mil) in 2QFY15. The improvement came largely from a much lower loan loss provision during the quarter, although there continued to be upticks in gross NPLs.

- In terms of topline growth, we estimate annualised loans growth at 5.2% in 3QFY15, vs. a 6.4% annualised growth in 2QFY15. The company had earlier attributed the anaemic loans growth trend to a slower macro environment. However, core deposit has continued to contract, at a larger rate of 9.3% in 3QFY15, compared with -8.2% in 2QFY15. The ongoing contraction in deposit growth means that our estimated loan-todeposit ratio has continued to rise, to 119.9% in 3QFY15 from 114.2% in 2QFY15.

- The higher LDR probably contributed to the better net interest margin (NIM), which improved by 23bps QoQ, to 3.38% in 3QFY15 from 3.15% in 2QFY15 based on our estimates. In terms of the non-interest income line, the net fee and service income has increased, attributed to higher loan-related fees, mutual funds and corporate finance. Other operating income also rose, which the company said was derived from the treasury businesses and dividend income.

- Gross non-performing loans (NPL) recorded an ongoing upward trend, with a 7.5% QoQ uptick to THB8.6bil in 3QFY15, from THB8.0bil in 2QFY15. This means gross NPL ratio continued to climb a few rungs higher to 4.3% in 3QFY15, from 3.9% in 2QFY15. This marks the third consecutive quarter of increase in NPLs. The company attributed the increase to an overall weak economic environment, which affected borrowers’ repayment ability.

- As mentioned earlier, loan loss provision was scaled back, to THB729mil in 3QFY15 compared with THB1,144.2mil in 2QFY15. This led to a corresponding decline in credit costs to an estimated 143bps in 3QFY15, from 237bps in 2QFY15. Given that the NPL continued to rise, loan loss cover slid lower to 89.2% in 3QFY15 from 94.3% in 2QFY15. We would have preferred a higher loan loss cover. Thus, essentially, while there was headline improvement in CIMB Thai’s net earnings, we believe there is little relief given that NPL has continued to move up while loan loss cover was allowed to slide. We maintain HOLD.

Source: AmeSecurities Research - 21 Oct 2015