Period

3Q15/9M15

Actual vs. Expectations

CIMB Thai’s 9M15 earnings of THB846.5m (-6% YoY) was ahead of expectation, representing 166% of streets’ full-year forecast, driven by non-interest income.

Dividends

No dividends were declared.

Key Results Highlights

9M15 vs. 9M14, YoY

Bottom-line (-6.0%) was hampered by higher provision for bad loans (+105%). Nevertheless, it was mitigated by strong growth at the top where total income grew 20%.

Total income (+20%) was lifted by: (i) growth in net interest income (+6.5%), (ii) stronger non-interest income (+64%) led by 20.3% expansion in net fee & service income, and (iii) a 95% growth in other income (mostly on gains on investments and financial liabilities).

Cost-to-income ratio (CIR) fell 10ppts to 59% on the back of a larger income base (+20%), while opex ran up only by 2%.

Net interest margin (NIM) expanded by 7bpts to 3.2% as a result of lower deposit cost of funding.

Net loans grew by 8% but lower deposit growth of 3%. In turn, loan-to-deposit ratio (LDR) expanded by 5ppts to 112%.

Asset quality deteriorated as gross impaired loan (GIL) ratio increased to 4.3% (+1ppts).

Annualised ROE declined to 4.9% (-50bpts).

Tier 1 Capital Ratio was down 130bpts to 9.1% while Total Capital Ratio dropped by 2ppts to 13.7%. 3Q15 vs. 2Q15, QoQ

On a more positive note, quarterly earnings rose 129% on the back of: (i) higher net interest income growth (+8%), and (ii) lower provisioning (-36%).

NIM increased by 19bpts (to 3.43%) while CIR increased by almost 3ppts (to 59%)

LDR spiked 5ppts to 112% as deposits contracted by 3% while loans expanded by 2%.

Nonetheless, asset quality was still depressed, as GIL ratio ticked up 40bpts to 4.3%.

Outlook

Weak exports and slow domestic consumption continue to drag the Thai economy. The Bank of Thailand kept interest rates steady at 1.5% since April to encourage spending and promote growth.

However, continuing economic volatility will put further upward pressure on its loan provisioning and NPL ratio.

NIM compression is likely to prevail as competition increased for deposits.

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 RM5.63. This is based on 1.1x FY16 P/B (COE of 8.8%, FY16 ROE of 9.42%, and TG 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 - 21 Oct 2015