CIMB Thai’s 2Q21 bottom-line increased 80% QoQ, thanks to positive Jaws from quicker top-line growth and lower loan loss allowances. Also, NIM has widened during the quarter and NPL ratio was unchanged. However, loans continued to shrink. Overall, results were largely within estimates and hence, forecasts were unchanged. Although trading at an attractive price point & foreign shareholding level is near decade low, it is still a riskier investment proposition among largesized banks. Maintain HOLD and GGM-TP of RM4.60, based on 0.77x FY22 P/B.

Broadly in-line. CIMB Thai (95%-owned) posted 2Q21 net profit of THB613m (+80% QoQ, doubled YoY), bringing 1H21 sum to THB955m (-31% YoY). This was largely inline with our estimates, forming 45% of full-year forecasts (we see loan loss provision coming off in following quarters as it has already made heavy pre-emptive allowances in FY20) but was below consensus at 38%; its contribution to overall group’s PBT is minimal at less than 10%.

QoQ. Net profit jumped 80% given positive Jaws (total income +8% while opex -1%) and lower bad loans provision (-7%). At the top, we note that net interest margin (NIM) widened 24bp and non-interest income (NOII) increased 10%, thanks to huge marketto-market gains (MTM, +2x).

YoY. Again, the doubling in bottom-line was due to: (i) total income rising 2% (we saw the 52% spike up in NOII from MTM quintupling was largely offset by the 11% drop in net interest income), while (ii) opex and (iii) loan loss allowances fell 9% (employee costs -13%) and 8% respectively.

YTD. Higher impaired loan provision (+19%) and weaker total income (-8%) have led earnings to decline 31%. Drag at the top was caused by loans and NIM contraction (- 9% and -10bp respectively).

Other key trends. Both net loans and deposits continued shrinking by 9.2% (1Q21: - 9.2%) and 5.8% YoY (1Q21: -11.3%) respectively. That said, net loan-to-deposit ratio remains elevated at 113% (-1ppt sequentially). As for asset quality, gross NPL ratio was unchanged QoQ at 4.8%.

Outlook. We expect CIMB Thai’s NIM to hold steady at current levels since Bank of Thailand appears inclined to pause its monetary easing cycle (but instead preferring fiscal & credit measures to combat Covid-19 headwinds). Also, their plan to switch to lower-yielding but safer assets will prevent NIM from broadening further. Separately, loans growth is seen to remain tepid for now as Covid-19 related woes 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 allow suspension of debt repayment for two months from July onwards, coupled with the readiness to implement additional measures, will help to limit a significant deterioration in NPL ratio.

Forecast. Unchanged as CIMB Thai’s 2Q21 Results Were Largely Within Expectations.

Retain HOLD and GGM-TP of RM4.60, based on 0.77x FY22 P/B with assumptions of 7.9% ROE, 9.4% COE, and 3.0% LTG. This is below both its 5-year mean of 0.90x & the sector’s 0.88x; we feel the valuation is fair given its ROE output is 1ppt beneath its historical and industry average. Although trading at an attractive price point (P/B at -1.0SD) and foreign shareholding is close to decade low, it is still a riskier investment proposition among large-sized banks, considering its less resilient asset quality.

Source: Hong Leong Investment Bank Research - 22 Jul 2021