CIMB Thai’s 4Q21 earnings fell 3% QoQ, no thanks to negative Jaws from weak total income and escalation in opex. Also, loans continued to decline. However, NIM has widened and NPL ratio improved. Overall, results were within estimates and thus, forecasts were unchanged. Since CIMB’s share price has performed strongly over the past 1 year, we prefer underappreciated, laggard, lower beta banking stocks (that have comparable recovery growth drivers) like RHB (TP: RM7.00) and Maybank (TP: RM9.40) as both of them present better risk-reward opportunities. Maintain HOLD and GGM-TP of RM5.40, based on 0.91x FY22 P/B.

Within estimates. CIMB Thai (95%-owned) posted 4Q21 net profit of THB732m (-3% QoQ but was an improvement when compared to a core loss of THB290m a year ago, after adjusting for NPL sale gains), bringing FY21 sum to THB2,441m (doubled YoY). This was within ours and consensus expectations, forming 101% of respective full year forecasts; its contribution to overall group’s PBT is minimal at less than 10%.

QoQ. Net profit decreased 3% given negative Jaws from weak total income (-4%) and escalation in opex (+9%). However, lower bad loan allowances (-22%) mitigated some of the impact. At the top, we note that loans continued to slide down (-2%), hurting net interest income (-4%) while poor treasury performance (-52%), dragged non-interest income (NOII; -3%). That said, net interest margin (NIM; +20bp) expansion provided some respite.

YoY. Bottom-line swung into the black to THB732m from a loss of THB290m in 4Q20, thanks to better total income (+5%) from stronger NOII (+50%) across the board and lower loan loss provision (-62%). Also, NIM widened by 20bp.

YTD. The doubling in earnings came on the back of positive Jaws (opex declined 8% vs total income which fell 3%) along with lower bad loan provision (-26%). For top-line, the tepid showing was due to shrinkage in NIM (-10bp) and net loans growth (-6%).

Other key trends. The decrease in net loans and deposits growth were still apparent, with the former falling 6.3% YoY (3Q21: -7.2%) while the latter dropped by 6.1% YoY (3Q21: -1.2%). Nevertheless, net loan-to-deposit ratio stays elevated at 114% (+8ppt sequentially). As for asset quality, gross NPL ratio improved 70bp to 3.7% due to the sale of some NPLs and more efficient risk management policies.

Outlook. We believe any interest rate hikes to counter steep inflation or to intervene the volatile THB currency by the Bank of Thailand would not greatly benefit CIMB Thai given the latter’s strategy to focus more on growing its lower-yielding but safer assets; hence, NIM should hover at current levels. Separately, loans growth is seen to remain tepid for now, considering the key tourism sector is still struggling. As for asset quality, the relaxation of debt assistance measures by Bank of Thailand until end-2022 will aid in limiting a significant deterioration in NPL ratio.

Forecast. Unchanged as CIMB Thai’s 4Q21 results were within expectations.

Retain HOLD and GGM-TP of RM5.40, based on 0.91x FY22 P/B with assumptions of 8.8% ROE, 9.4% COE, and 3.0% LTG. This is in line to its 5-year and sector mean of 0.90x; we feel the valuation is fair given its ROE output is similar to pre-pandemic level and industry average. Since CIMB’s share price has performed strongly over the past 1 year, we prefer underappreciated, laggard, lower beta banking stocks (which have comparable recovery growth drivers) like RHB (TP: RM7.00) and Maybank (TP: RM9.40) as both of them present better risk-reward opportunities.

Source: Hong Leong Investment Bank Research - 24 Jan 2022