Period  2Q14/6M14

Actual vs. Expectations CIMB Thai reported 1H14 PAT of THB625m, a 15% YoY improvement but only accounted for 44% to the consensus estimate of THB1.42b.

 Annualized, its ROE rose by 40bps to 5.6%.

Dividends  No dividends were declared.

Key Results Highlights

1H14 vs. 1H13

 CIMB Thai posted a sturdy 15% YoY increase in its bottomline, thanks to higher contribution from its net interest income (+25% YoY) and non-interest income (+47% YoY). Better cost discipline also helped to boost its overall profitability as well (cost-to-income ratio fell 6ppts YoY to 68%).

 Net loans and deposits rose by 17% and 14% YoY, respectively, causing LDR to increase 3ppts YoY.

 Notably, pressure on NIM was arrested, growing by 80bps YoY to 3.14%.

 That said, its asset quality dipped as gross impaired loans ratio increased (+0.3ppts YoY) to 3% along with a higher loan loss coverage of 101% (+17ppts YoY).

2Q14 vs. 1Q14

 On a different note, its quarterly net profit fell 60% QoQ on the back of lower non-interest income (-43% QoQ) despite NIM expanding by 23bps QoQ.

 Consequently, cost-to-income ratio spiked 11ppts QoQ during period.

 Asset quality and loan loss coverage remained largely unchanged from 1Q14.

Outlook  On the backdrop of a possible economic slowdown in Thailand, we can expect rigorous loan provisioning and higher NPLs. Hence, this may in turn exert pressure on its bottomline moving forward. That said, stringent cost controls could help cushion some of the negative impact.

 Deterioration in forex, i.e. depreciation of THB against MYR, may lower CIMB Thai’s earnings contribution to the Group level. For the first 6 months of the year, THB have depreciated 1.3% against MYR.

 That said, we are not overly concerned given that CIMB Thai only contributes c.5% to the overall Group’s PBT.

Change to Forecasts No change to our forecasts.

Rating Maintain MARKET PERFORM

Valuation  Our target price of RM8.00 is unchanged. This is computed based on a blended average of 1.8x FY15 PBV & 13.5x FY15 PE.

Risks to Our Call Tighter lending rules and further margin squeeze at group level.

 Macroeconomic slowdown in respective operating countries.

 Lacklustre trading sentiment from on-going merger talks.

Source: Kenanga