• Stronger traction in 2QFY17 earnings

• Net profit growth in 1HFY17 due to lower provisions and higher NII

• Provisions continue to be on downtrend

• No change to our forecast for now

• Prospect for the Group remains good. However, maintain NEUTRAL, due to prospects being priced in. TP remains unchanged at RM7.10, based on pegging the stock to 1.3x to FY18 BVPS

Traction gaining strength. CIMB Thai 1HFY17 earnings grew +30.1%yoy to THB477.8m due to stronger result in 2QFY17, where net profit grew nearly 8-fold to THB356.6m. The better 1HFY17 result was due to better NII and lower provisions.

Better NII from improved NIM. NII for 1HFY17 grew +2.0%yoy despite gross loans being almost flattish (+0.5%yoy to THB208.4b). The improved NII was on the back of better NIM, which improved +2bps yoy.

NOII rebounded but declined overall. NOII fell -12.8%yoy due to lower gains on trading and forex transactions. However, it rebounded in 2QFY17 where it grew +7.4%yoy.

Provisions downtrend continues. Provisions fell -17.2%yoy in 2QFY17 which alleviated the situation for 1HFY17. We believe this was due to improved NPL ratio. While gross NPL ratio stood at 5.4%, which was higher than the 4.3% registered as at 1HFY16. However, it was an improvement from the 6.1% posted as at 4QFY16. The lower NPL ratio was mainly due to the sale of some NPLs in 1QFY17, more efficient risk management policies, continued resolution of its NPLs and improvements in loan collection processes.

Loans growth remains flat but deposit growth was decent.

Whilst loans growth was flattish, possibly due to some rebalancing, deposits grew at a decent +2.2% to THB207.0b.

Turning around in Thailand. As we have anticipated, the Group’s Thailand operations are turning around as evident by this quarter’s result. We believe that CIMB Thai will be a positive contributor to the Group in FY17.

FORECAST

We make no changes to our forecast pending 2QFY17 result for the Group.

VALUATION AND RECOMMENDATION

We reiterate our expectation that the situation in Thailand is improving with provisions to be on a downtrend for the rest of FY17. As such, we believe that the Group’s business in Thailand continue to be sound given the NII growth and will be a positive contributor to the Group’s earnings this year. We believe that prospect for the Group remains solid. However, we believe that the good prospect of the Group have been priced in by investors. Hence, we maintain our NEUTRAL recommendation with unchanged TP of RM7.10 based on pegging its FY18 BVPS to PBV multiple of 1.3x.

Source: MIDF Research - 20 Jul 2017