CIMB Thai’s 2Q22 net profit rose 72% YoY, thanks to lower loan loss provision. Also, NIM has remained stable sequentially and loans growth continued to pick up momentum. Besides, asset quality improved due to the sale of some NPLs. Overall, results were within estimates and thus, forecasts were unchanged. We are not yet turning bullish, despite price weakness given that CIMB has one of the highest investment % concentration in HFT securities with negative FVOCI. Moreover, the recent fiasco surrounding its duplicate credit transactions does not help market sentiment. Keep HOLD and GGM-TP of RM5.65, based on 0.90x FY23 P/B.

In line. CIMB Thai (95%-owned) chalked in 2Q22 net profit of THB1.1bn (-1% QoQ, +72% YoY), bringing 1H22’s total to THB2.1bn (doubled). This was within estimates, accounting for 51-53% of both our and consensus full-year forecasts; its contribution to overall group’s PBT is minimal at less than 10%.

QoQ. Net profit fell 1%, no thanks to negative Jaws from higher opex (+10%) but was mitigated by the drop in loan loss provision (-5%). Also, the increase in top-line (+4%) helped to cushion some of the damage; this is backed by loans growth (+3%), stable net interest margin (NIM), and better non-interest income (NOII, +8%).

YoY. The 72% jump in bottom-line came on the back of lower allowance for bad loans (-63%). Otherwise, results were hit by weak total income (-4%) due to NIM contraction (-52bp) but the higher NOII (+10%) provided some respite.

YTD. Positive Jaws from lower opex (-9%) together with the decline in impaired loans provision (-64%) have helped profit to double. However, there was again some drag at the top (-2%), owing to NIM compression (-40bp).

Other key trends. We saw net loans and deposits growth improved further to +2.3% YoY (1Q22: -1.4%) and +12.9% YoY (1Q22: +3.8%) respectively. In turn, net loan-to deposit ratio fell 6ppt sequentially to 102%. As for asset quality, gross NPL ratio ticked down 50bp to 3.3% due to the sale of some NPLs.

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. 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 help to limit a significant deterioration in NPL ratio.

Forecast. Unchanged as CIMB Thai’s 2Q22 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 0.88-0.90x; 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 Jul 2022