Period

1Q15

Actual vs. Expectations

CIMB Thai’s 1Q15 PAT of THB131m (-70% YoY) was below expectation, making up only 15% of streets’ fullyear forecast.

Dividends

No dividends were declared.

Key Results Highlights

1Q15 vs. 1Q14, YoY

Despite showing commendable growth at the top – where total income grew 9% thanks to higher insurance premium fees – its bottomline (-70%) was dragged by an increase in bad loan provisioning (+118%).

Although opex ran up by 6%, cost-to-income ratio (CIR) fell 2ppts to 61% on the back of larger income base.

Net interest margin (NIM) contracted 9bpts to 3.1%, resulting from higher cost of funds.

Net loans and deposits rose by 10% and 22%, respectively, causing loan-to-deposit ratio (LDR) to fall to 99% (-11ppts).

Asset quality deteriorated as gross impaired loan (GIL) ratio increased to 3.7% (+60bpts).

Annualised ROE declined to 2.3% (-6ppts).

Tier 1 capital ratio slid down 40bpts to 9.7% while total capital ratio improved 1ppts to 14.5%. 1Q15 vs. 4Q14, QoQ

On a different note, quarterly PAT jumped 47% thanks to higher non-interest income growth of 65% and opex dropping by 8%.

NIM and CIR fell 35bpts and 10ppts respectively.

LDR contracted 1ppts to 99%, as deposits (+1%) grew faster than loans (flat).

Asset quality was discouraging where GIL ratio increased to 3.7% (+40bpts).

Outlook

The Thai economy remains on a weak recovery path given modest consumption, investment and exports growth.

So far, Junta leader/Prime Minister Prayuth Chanocha’s fiscal stimulus package had failed to jumpstart the sluggish economy.

In another attempt to stimulate economic growth, Bank of Thailand cut its key interest rate to 1.75% from 2%. With this, NIM compression is likely to stay.

Furthermore, the high industry’s LDR of over 100% will spur competition in the market, especially within the deposit taking space.

Change to Forecasts

No change to our forecasts as CIMB Thai contributes only ~5% to Group’s PBT.

Rating

Maintain MARKET PERFORM

Valuation

Our GGM-TP of RM6.21 is unchanged. This is based on 1.28x FY15 P/B; we utilised: (i) COE of 8.8%, (ii) FY15 ROE of 10.5%, and (iii) terminal growth of 3%.

Risks to Our Call

Steeper margin squeeze.

Slower-than-expected loans and deposits growth.

Worse-than-expected deterioration in asset quality.

Further slowdown in capital market activities.

Adverse currency fluctuations.

Source: Kenanga Research - 22 Apr 2015