CIMB Thai returned to the black with core profit coming at THB341m; this was thanks to positive Jaws from quicker top-line growth and lower allowances for bad loans, on a sequential basis. Also, NIM has widened during the quarter but loans shrank further, causing NPL ratio to tick up as well. Overall, results were within expectations and hence, forecasts were unchanged. While trading at an attractive price point and decade low foreign shareholding level, CIMB is still a riskier investment proposition, given less resilient asset quality, in our opinion. Maintain HOLD and GGM-TP of RM4.50, based on 0.77x FY21 P/B.

Largely in-line. Excluding NPL sale gains in 4Q20, CIMB Thai (95%-owned) posted 1Q21 core profit of THB341m (vs -THB290m in 4Q20, -68% YoY). This was largely in line with our and consensus estimates, forming 20-21% of full-year forecasts (we see loan loss allowances coming off in subsequent quarters as it has already made heavy pre-emptive provisioning in FY20); its contribution to overall group’s PBT is minimal at less than 10%.

QoQ. Bottom-line returned to the black, given positive Jaws (top-line grew 1ppt faster than opex) and lower bad loans provision (-36%); we note non-interest income (NOII) jumped 45%, on the back of huge mark-to-market (MTM, +2x) and investment gains (+13x). Also, fees were up 35% during the quarter. Besides, net interest margin (NIM) widened 18bp. Overall, these helped to mitigate the contraction in loans.

YoY. The 68% decrease in core profit was due to the drop in total income (-17%) and higher impaired loan allowances (+64%). The weak top-line was no thanks to the fall in NOII (-26%) given softer MTM (-67%) and investment gains (-7%), narrowing NIM (- 23bp), and shrinkage in loans (-9%).

Other key trends. Both net loans and deposits shrank further by 9.2% (4Q20: -4.4%) and 11.3% YoY (4Q20: -2.6%) respectively. That said, net loan-to-deposit ratio was still elevated at 114% (stayed relatively flat on a sequential basis). As for asset quality, gross NPL ratio ticked up 20bp QoQ to 4.8%, mainly due to a smaller loan base.

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, coupled with the readiness to implement additional measures, will help to limit a significant deterioration in NPL ratio.

Forecast. Unchanged as CIMB Thai’s 1Q21 results were largely within expectations. Introduced FY23 estimates.

Retain HOLD and GGM-TP of RM4.50, based on 0.77x FY21 P/B with assumptions of 6.2% ROE, 7.2% COE, and 3.0% LTG. This is beneath both its 5-year average of 0.90x and the sector’s 0.91x; we feel the valuation is fair given its ROE output is 1ppt below its historical and industry mean. While trading at an attractive price point (P/B at -1.0SD) 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 Apr 2021