INVESTMENT HIGHLIGHTS

• Turned net profit when compared to last quarter but lower year-on-year.

• Lower net profit due to lower NOII but moderated by NII growth.

• Provisions remain elevated but appearing to be on downtrend.

• No change to our forecast for now.

• Prospect for the Group remains solid. Maintain BUY with unchanged TP of RM6.40 pegging the stock to 1.2X Price-to-Book multiple.

Positive result albeit lower. CIMB Thai posted turned net profit in 1QFY17 with THB121.2m when compared to last quarter’s loss. Comparing to 1QFY16, net profit declined -63.0%yoy due to lower NOII and higher provisions.

NOII lower due to lower investment income. NOII declined - 27.8%yoy to THB667.3m. This was due to lower gains on investments which came in THB3.16m as compared to THB310.2m in 1QFY16. However, this was compensated by the increase in net fee and service income which rose +27.6%yoy to THB427.4m.

However, NII moderated the impact. NII grew +3.0%yoy to THB2,462.6m despite flattish loans growth. The NII growth was due to improved NIM, which was higher by +5bps yoy to 3.77% from more efficient funding cost management.

Still elevated provisions. Provisions remains elevated, growing +7.0%yoy to THB1,230.1m. This was due to higher NPLs when compared to 1QFY16. We believe that this is a continuation to the NPLs from the agricultural segment more specifically from the rice sub-segment that we saw last quarter. Nevertheless, we understand that all Thai banks were affected by the rice industry.

But gross NPL ratio improving. However, we believe that the impact from the rice industry is slowly waning. This is evident by the improved gross NPL ratio of 5.3% vs. 6.1% as at 4QFY16. The lower NPL ratio was mainly due to the sale of some NPLs, continued resolution of NPLs and improvements in loan collection processes

Flattish loans growth but healthy deposit growth. Total gross loans stood at THB206.9b, an increase of +0.6%yoy. On the other hand, “pure” deposits increased of +15.3%yoy to THB181.6b.

Expected to have minimal impact to the Group's result. We do not expect the result from CIMB Thai to have significant impact to the Group’s earnings. We estimate that the contribution to the Group’s 1QFY17 net profit is approximately RM15.5m. However, we are sanguine for the prospect of CIMB Thai given the improving NPL, downtrending provisions and its steady NII.

FORECAST

We make no changes to our forecast pending 1QFY17 result for the Group, expected next month.

VALUATION AND RECOMMENDATION

We believe that the situation in Thailand is improving and we expect provisions to be on a downtrend for the rst of FY17. As such, we believe that the Group’s business in Thailand continue to be sound given the NII growth. We believe that prospect for the Group remains solid, with recovery in Indonesia and steady growth in Malaysia to be the main driver for this year. Hence, we maintain our BUY recommendation. Our unchanged TP of RM6.40 is based on PB multiple to 1.2x.

Source: MIDF Research - 21 Apr 2017