Period

2Q15/1H15

Actual vs. Expectations

CIMB Thai’s 1H15 earnings of THB348m (-44% YoY) was ahead of expectations, representing 170% of streets’ full-year forecast.

Dividends

No dividends were declared.

Key Results Highlights

1H15 vs. 1H14, YoY

Bottom-line (-44%) was hampered by high provision for bad loans (+139%). Nevertheless, it was mitigated by strong growth at the top where total income grew 19%.

Total income (+19%) was lifted by: (i) higher fee revenue (+28%), (ii) stronger investment (+120%) and (iii) forex gains (+71%).

Cost-to-income ratio (CIR) fell 10ppts to 59% on the back of a larger income base (+19%), while opex ran up only a mere 1%.

Net interest margin (NIM) narrowed 1bpts to 3.1% as a result of lower yielding assets.

Net loans and deposits grew 10% and 11%, respectively. In turn, loan-to-deposit ratio (LDR) shrank 2ppts to 107%.

Asset quality deteriorated as gross impaired loan (GIL) ratio increased to 3.9% (+80bpts).

Annualised ROE declined to 3.1% (-3ppts).

Tier 1 capital ratio was down 1ppts to 9.3% while total capital ratio was flat at 14%. 2Q15 vs. 1Q15, QoQ

On a more positive note, quarterly earnings rose 67% on the back of: (i) higher total income growth (+5%) and (ii) opex falling by 5%.

NIM saw some respite as it increased 12bpts (to 3.2%) while CIR dropped 6ppts (to 56%)

LDR spiked 8ppts to 107% as deposits contracted 5% while loans expanded 3%.

Asset quality was still depressed. GIL ratio ticked up 20bpts to 3.9%.

Outlook

Weak exports and slow domestic consumption continue to drag the Thai economy. In response, Bank of Thailand had again lowered the key interest rate to 1.5% from 1.75% back in Apr-15; this marks the fourth rate cut since Nov-14.

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

All in, NIM compression is likely to stay.

Change to Forecasts

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

Rating

Maintain MARKET PERFORM

Valuation

For now, we keep our GGM-TP at RM6.31. This is based on 1.22x FY16 P/B (COE of 8.8%, FY16 ROE of 10.0%, and TG of 3%). To note, there will be a meeting with management later today.

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 - 21 Jul 2015