Period

4Q15/FY15

Actual vs. Expectations

CIMB Thai’s FY15 earnings of THB1052.5m (+6.4% YoY) was ahead of expectation, representing 105.1% of streets’ full-year forecast, driven by non-interest income.

Dividends

No dividends were declared.

Key Results Highlights

FY15 vs. FY14, YoY

Bottom-line (+6.4%) was driven by strong performances from total income at +19.1% but mitigated by higher allowances for impairment losses at +77%.

Total income was lifted by: (i) growth net interest income (+7.5%), (ii) stronger non-interest income (+57.9%) led by a 9.6% expansion in net fee and service income and a 79% growth in other income. Other income growth (+79%) was driven by a 67% expansion in gain in investments and a 58% growth in other operating income.

Cost-to-income ratio (CIR) fell 11ppts to 58.3% on the result of better cost management and increased income (+19.1%), as opex fell by 0.2 %.

Net interest margin (NIM) fell by 10bps to 3.3% as a result of lower yielding assets.

Net loans grew by 4.3% but deposit growth fell by 7.4%. In turn, loan-to-deposit ratio (LDR) expanded by 13ppts to 113%.

Asset quality improved by 20bps as gross impaired loan (GIL) ratio drop to 3.1% mainly due to selling of NPLs in 4Q15 and improvements in loan collection process.

No change in Annualised ROE at 4.4% as attributed to higher shareholders’ equity expansion of 19.5%.

Tier 1 capital ratio was up 90bps to 11.0% while total capital ratio improved by 20bps to 15.7%. 4Q15 vs. 3Q15, QoQ

On a quarterly basis, quarterly earnings fell 58.7% on the back of: (i) disappointing non-interest income growth (-8.1%), and (ii) higher allowances for impairments (+20%).

NIM increased by 20bps (to 3.6%) while CIR fell 120bps (to 57.5%)

LDR spiked slightly to 50bps to 113% as deposits and loans contracted by 0.5% and 0.1%, respectively.

Asset quality improved as GIL ratio fell by 120bps to 3.1%.

Outlook

The Thai economy is expected to be subdued for 2016 as weak exports and slow domestic consumption continue to drag the economy. The Bank of Thailand kept interest rates steady at 1.5% since April to encourage spending and promote growth.

The subdued economy for 2016 is expected to 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 CIMB Group’s PBT.

Rating

Maintain UNDERPERFORM

Valuation

For now, we keep our GGM-TP of RM4.06 (previously RM4.23). This is based on 0.81x FY16E P/B (previously 1.0x FY16 P/B); we utilised: (i) COE of 8.9% (from 8.8% previously), (ii) FY16 ROE of 7.8% (previously FY16E ROE of 7.9%), and (iii) terminal growth of 3% (unchanged).

Risks

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 - 20 Jan 2016