INVESTMENT HIGHLIGHTS

• As expected, earnings recovered

• Lower provisions was the main factor

• Better NIM also played a role, resulting in NII expansion but was moderated by lower NOII and higher OPEX

• Additional update on the Group; partly completed proposed partnership with China Galaxy for its stock broking business

• No change to our forecast for now

• Prospect for the Group remains good. Maintain BUY with TP unchanged at RM7.17, based on pegging the stock to 1.3x to FY18 BVPS

Back in black as expected. As we had expected, CIMB Thai finished the year being in black. It registered a FY17 net profit of THB384.9m as compared to loss of -THB629.5m in FY16. Main reason for the improvement was lower provisions of -19.5%yoy to THB5,053m.

Asset quality improved. The situation in Thailand continued to improve slightly as NPL ratio fell -1.3ppts yoy to 4.8% as at FY17. The lower NPL ratio was mainly due to the sale of NPLs in 2017, more efficient risk management policies, improved asset quality management and loan collection processes. Provisions also continued its downtrend as it fell -53.7%yoy to THB1,342m in 4QFY17.

Better margins led to higher NII. NIM came in +12bps yoy higher to 3.89% in FY17. As a result, NII grew +3.4%yoy to THB10.20b. The NIM improvement was due to more efficient cost of fund management as interest expense fell -9.4%yoy to THB4.36b, while interest income was flattish at -0.8%yoy to THB14.56b.

Weaker NOII moderated earnings growth... NOII fell -3.6%yoy to THB2.95b due to higher losses in financial instruments designated at fair value through profit or loss. This came in at -THB1.73b in FY17 from -THB810.4m in FY16. However, NOII was higher on a year-on-year basis in 4QFY17, showing that it recovered in 2HFY17.

...as did higher cost. OPEX was +2.6%yoy higher to THB7.61b in FY17. This was mainly due to higher staff expenses which grew +5.5%yoy to THB4.07b. We understand that there were one-off expenses during the year that was related to business rationalisation.

Source: MIDF Research - 19 Jan 2018