Period  3Q14/9M14

Actual vs. Expectations  CIMB Thai’s 9M14 PAT of THB900m (-6% YoY) was ahead of expectations, making up 81% of streets’ full year forecasts.

Dividends  No dividends were declared.

Key Results Highlights

9M14 vs. 9M13, YoY

 Although CIMB Thai’s net interest income (+23%) and non-interest income (+27%) growth was commendable, its bottomline (-6%) was dragged by: (i) higher opex (+17%) and (ii) higher loan loss provisioning (+67%).

 Cost-to-income ratio (CIR) fell by 4ppts to 69% on the back of larger income base and effective cost management.

 Net interest margin (NIM) expanded 27bpts to 3.2% as cost of funds was better managed.

 Net loans and deposits rose by 11% and 8%, respectively, causing loan-to-deposit ratio (LDR) to increase to 107% (+3ppts).

 Asset quality deteriorated as gross impaired loan ratio increased to 3.3% (+80bpts) while loan loss coverage ticked up to 95% (+11ppts).

 Annualised ROE declined to 5.4% (-70bpts).

 Tier 1 and total capital ratios improved 0%-1% to 10% and 15%, respectively.

3Q14 vs. 2Q14, QoQ

 On a different note, quarterly PAT jumped 49% thanks to higher net interest income (+5%) and non-interest income (+13%) while opex was flat.

 NIM expanded 15bpts while CIR fell 4ppts.

 LDR contracted 2ppts to 107%, as deposits (+5%) grew faster than loans (+3%).

 Asset quality was discouraging where gross impaired loan ratio increased to 3.3% (+20bpts) while loan loss coverage declined to 95% (-6ppts).

Outlook  Since the political unrest at Thailand has faded, its economy is expected to recover, lifted by stronger domestic consumption and demand. Hence, business operations in Thailand should gain traction.

 Appreciation in THB against MYR will positively impact CIMB Group earnings. For the first 9M of the year, THB has appreciated 1.3% against MYR. That said, CIMB Thai only contributes c.5% to overall Group’s PBT.

Change to Forecasts     No change to our forecasts.

Rating Maintain MARKET PERFORM

Valuation  Our target price of RM7.15 is unchanged, based on 1.6x FY15 P/B. The lower multiple is to reflect slower growth and lower ROE generation, moving forward.

Risks to Our Call Further margin squeeze from tighter lending rules and stronger-than-expected competition.

 Slower-than-expected loan growth and deterioration in asset quality.

 Rising credit charge as result of an up-cycle in NPL.

 Further slowdown in capital market activities.

 Unfavourable regulatory changes.

 Adverse currency fluctuations.

Source: Kenanga