INVESTMENT HIGHLIGHTS

• Net profit dragged by higher taxation and higher OPEX

• Income growth was robust

• Along with lower provisions, moderated the drag

• No change in asset quality

• No change to our forecast

• Maintain BUY with unchanged TP of RM7.85 pegging the stock to 1.4x FY19 Price-to-Book multiple

Earnings dragged by higher taxation. CIMB Thai 9MFY18 net profit came in marginally lower by -3.1%yoy to THB537.4m. This was mostly due to higher taxation as profit before tax rose +5.9%yoy. Tax was +41.1%yoy higher to THB199.2m over the period.

Also on higher OPEX. For 9MFY18, OPEX grew +10.8%yoy to THB6.02b. The increase in OPEX came from higher employee expenses and others. These expanded +9.6%yoy to THB3.3b and +24.6%yoy to THB1.58b. However, we are not overly concerned by this as the increase was due to expansion.

Robust income growth, and... NII grew +4.4%yoy to THB7.94b due to loans expansion of +4.3%yoy to THB219.9b. Interest income rose +3.2%yoy to THB11.27b while interest expense was flattish with +0.3%yoy to THB3.33b. This was despite NIM coming in -11bps to 3.77% lower on lower yield assets.

...lower provisions moderated the drag. Provisions for 9MFY18 fell -10.3%yoy to THB3.33b despite gross NPL remaining the same. Gross NPL was 5.7% as at 3QFY18.

Strong deposits growth. Deposits (inclusive of Bill of Exchanges, Debentures and selected Structured Deposit Products) grew +9.2%yoy to THB231.6b. This resulted in Modified LD to come down to a reasonable 95% from 99.4% as at 3QFY17.

FORECAST

We make no changes to our forecast pending the Group's 3QFY18 result next month.

VALUATION AND RECOMMENDATION

The 3QFY18 result of CIMB Thai have not cause us to change our view that the situation in Thailand is improving with provisions continue to be on a downtrend. We were also encouraged to see income grew robustly despite NIM compression. As such, we believe that the Group’s business in Thailand continues to be sound, and it seems that Group is expanding there. We do not believe that CIMB Thai will be a drag to the Group's earnings. Furthermore, we believe that the Group will be able to achieve its ROE target for this year with the performance in Malaysia to continue to be solid. Hence, we maintain our BUY recommendation with unchanged TP of RM7.85 based on pegging its FY19 BVPS to PBV multiple of 1.4x.

Source: MIDF Research - 22 Oct 2018