CIMB Thai’s 1Q22 net profit rose 45% QoQ, thanks to positive Jaws from lower opex along with the drop in loan loss provision. Also, loans have begun to pick up pace sequentially. However, NIM contracted while NPL ratio weakened. All in all, results were within estimates and hence, forecasts were unchanged. We are not yet bullish, despite price weakness given that CIMB has one of the highest investment % concentration in HFT securities with negative FVOCI. Besides, the recent fiasco surrounding its duplicate credit transactions does not help market sentiment. Maintain HOLD and GGM-TP of RM5.65, based on 0.90x FY23 P/B.

In line. CIMB Thai (95%-owned) chalked in 1Q22 net profit of THB1.1bn (+45% QoQ, +3-fold YoY). This was in line with our and consensus expectations, forming 28% of respective full-year forecasts; its contribution to overall group’s PBT is minimal at less than 10%.

QoQ. Net profit increased 45%, thanks to positive Jaws from lower opex (-15%); this was backed by better cost control where premises-related and other expenses fell 32- 40%. Also, the drop in loan loss provision (-39%) contributed to higher earnings. That said, top-line growth was muted at 1% given the 30bp slippage in net interest margin (NIM). However, better non-interest income (NOII, +9%), fuelled by stronger treasury performance (+64%), provided some respite.

YoY. Similarly, the tripling in bottom-line came on the back of cost optimization (where opex -14%) and lower bad loan allowances (-64%). Yet again, total income was tepid (-1%) due to NIM contraction (-28bp) but was cushioned by robust NOII (+12%); this was led on by better investment-related (+15%) and other operating income (+33%).

Other key trends. We saw that net loans and deposits growth improved to -1.4% YoY (4Q21: -6.3%) and +3.8% YoY (4Q21: -6.1%) respectively. In turn, net loan-to-deposit ratio was down 6ppt sequentially to 108%. As for asset quality, gross NPL ratio ticked up 10bp to 3.8%.

Outlook. With the Bank of Thailand looking to maintain its accommodative monetary policy stance, along with CIMB Thai’s plan to focus more on growing its lower-yielding but safer assets, we expect NIM to hold steady at current levels instead of expanding. That said, loans growth is seen to improve further, in tandem with economic recovery. 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 1Q22 results were within expectation.

Retain HOLD and GGM-TP of RM5.65, based on 0.90x FY23 P/B with assumptions of 8.9% ROE, 9.5% COE, and 3.0% LTG. This is largely in line to its 5-year and sector mean of 0.89-0.92x; we feel the valuation is warranted given its ROE output is similar to pre-pandemic level and industry average. Despite its recent share price weakness, we are not yet turning bullish, considering CIMB has one of the highest investment % concentration in HFT securities, making its P&L sensitive to MGS yield movement and the negative FVOCI reserve is unlikely to provide meaningful respite. Also, the recent fiasco surrounding its duplicate credit transactions does not help market sentiment.

Source: Hong Leong Investment Bank Research - 22 Apr 2022