CIMB Thai went into losses of THB290m in 4Q20 on the back of higher loan loss provision and drop in total income. Also, loans and NIM contracted but the sale of bad loans led to NPL ratio improvement. Overall, no changes were made to forecasts. While trading at an attractive price point (P/B at -1.5SD) and foreign shareholding level is at decade low, it is still a riskier investment proposition among large-sized banks, given less resilient asset quality. Maintain HOLD and GGM-TP of RM4.35, based on 0.73x FY21 P/B.

Within estimates. Excluding NPL sale gains, CIMB Thai (95%-owned) posted 4Q20 core loss of THB290m (vs THB82m in 3Q20 and THB790m in 4Q19), bringing FY20’s sum to THB1.2bn (-27% YoY). This was in line with our and consensus expectations, making up 102-104% of full-year forecasts. Typically, its contribution to overall group’s PBT is <10% but given the 2 fraudulent O&G accounts dragging Singapore’s showing, this has risen to c.15%.

QoQ. It went into the red, no thanks to higher loan loss provision (+26%) and the drop in total income (-7%); this was led by weak mark-to-market (MTM, -65%), investment (-87%), and forex gains (-20%). Also, net interest margin (NIM) contracted 40bp.

YoY. Similarly, the loss was driven by the quadrupling of bad loan allowances. Total income was also a culprit, falling by 14% due to NIM compression (-60bp), 4% decline in net loans, weaker fees (-51%) and lower investment gains (-86%).

YTD. Again, higher impaired loan provision (+60%) caused profit to fall 27%. This was cushioned by positive Jaws (top-line rose 8ppt faster than opex) and lower effective tax rate (-5ppt).

Other key trends. Both net loans and deposits contracted 4.4% (3Q20: flat) and 2.6% YoY (3Q20: +3.5%) respectively. That said, net loan-to-deposit ratio was still elevated at 114% (+1ppt sequentially). As for asset quality, gross NPL ratio fell 130bp QoQ to 4.6% due to some bad loans being sold during the quarter.

Outlook. We see CIMB Thai’s NIM to gradually stage a recovery in following quarters as Bank of Thailand appears inclined to pause its monetary easing cycle (but instead preferring fiscal and credit measures to combat Covid-19 headwinds). However, their plan to switch to lower-yielding but safer assets will cap expansion. Separately, loans growth is seen to remain tepid for now as Covid-19 related headwinds drag near-term performance but should pick up pace 6-12 months down the road. As for asset quality, Bank of Thailand’s move to extend the financial relief measures to troubled borrowers until Jun-21 will help to limit a significant deterioration in NPL ratio.

Forecast. Unchanged as CIMB Thai’s 4Q20 Results Were Within Expectations.

Retain HOLD and GGM-TP of RM4.35, based on 0.73x FY21 P/B with assumptions of 5.9% ROE, 6.9% COE, and 3.0% LTG. This is beneath both its 5-year average of 0.91x and the sector’s 0.87x; we feel the valuation is fair given its ROE output is 3ppt below its historical and industry mean. While trading at an attractive price point (P/B at -1.5SD) and foreign shareholding level is at decade low, it is still a riskier investment proposition among large-sized banks, given less resilient asset quality.

Source: Hong Leong Investment Bank Research - 22 Jan 2021