CIMB Thai which announced their third quarter results yesterday saw turnaround in 3Q15 net profit, rising +129% qoq while on a yoy, up +81.2% to THB498.4m (RM60.2m). As a result of the more encouraging quarter, net profit for 9M15 improved to THB846.5m (RM102.3m, representing 3% contribution to our 2015E estimate of Group net profit of RM3,380.4m). The Thai unit’s results were above our expectations as our forecast factors in only a 3% earnings contribution the Group.

The key factor driving the turnaround in 3Q15 was sharply lower impaired loan allowances (-36.3% qoq, though +45.3% yoy), while partially boosted by a steady level of operating income (+2.6% qoq, +22.7% yoy). Nonetheless, for 9M15, the total impaired allowances at CIMB Thai is still 105.4% higher than that of 9M14 due to the high allowances level during 1H15, but the extent of decline in 9M15 net profit has been reduced to - 6.0% yoy. Overall, 9M15 operating income, which was up 20% yoy was boosted by strong fee income growth (+20% yoy), non-interest income (+95%) and fund-based income (+6.5% yoy). (Source; Bursa Malaysia)

Comments: We maintain our BUY rating on CIMB Group, with our Price Target of RM5.90 (based on a 2016E P/BV of 1.17x and 2016E ROE of 10.6%). We believe that 1H15 marked the trough in terms of earnings, and 2H15E may see an absence of heavy provisions at CIMB Niaga. The full benefits of the rationalization exercise (which is part of the Target 2018 initiatives), are expected to be realized from 2016E onwards with costsavings of approximately RM500m p.a.

Source: Affin Hwang Capital Research - 21 Oct 2015