Losses driven by sharply higher impairment losses

CIMB Thai reported net loss of THB629.5mn vs. profit of THB1,052.5mn a year ago. The weak results were mostly underpinned by sharply higher bad and doubtful debts and impairments losses, which ballooned to THB6,279mn from THB3,770mn in 2015. This represents a 67% YoY increase. According to management, the increase in provision was mainly due to rising NPLs in certain industries during the year as well as those arising from the gradual pace of the economic recovery.

Gross NPL ratio balloons, Sale of NPLs completed in January

CIMB Thai’s gross non-performing loans (NPL) stood at THB 12.7bn. Gross NPL ratio stood at 6.1% (2015: 3.1%). Management noted that the increase was due to slower repayment ability from borrowers in certain sizable corporate accounts. Elsewhere, the loan loss coverage ratio decreased to 77.3% from 106.5% at the end of December 2015. The bank undertook an NPL sale, which was completed in early January 2017. Taking this into consideration, CIMB Thai’s proforma gross NPL ratio and loan loss coverage ratio as at 31 December 2016 would be 4.8%.

Topline growth recorded

Despite the dismal set of results, total income accelerated by 6% YoY on the back of stronger net interest income (NII) and fee income. NII grew by 16% YoY on the back of higher gross loans (+3.7% YoY to THB206.4bn) and wider net interest margin (NIM) of 3.77% in 2016, compared to 3.27% from 2015 owing to more efficient funding cost management. Meanwhile, fee income climbed 11% YoY mainly due to higher hire-purchase and financial lease fees and insurance premiums. Muting the encouraging NII and fee income growth were lower other non-interest income due to softer gains on trading and FX transactions, decrease in gains on investments along with higher unrealised losses on some financial instruments.

Rights issue proposed

Separately, CIMB Thai is proposing a rights issue to reinforce its capital position and balance sheet to support business growth. The bank plans to raise up to THB 5,505.5mn capital via Rights Offering. The Rights Offering will be issued at a ratio of 2 Rights Shares for every 9 existing CIMB Thai shares. According to management, the proposed Rights Offering will strengthen the bank’s BIS ratio to 18.5% from 16.1% currently. CIMB Group is currently the bank’s largest shareholder with a 93.7% stake.

No change to earnings estimates

We make no change to our earnings estimates pending CIMB’s upcoming FY16 results announcement. TP is maintained at RM5.60. This translates to an implied FY17 PBV of 1.04x. CIMB is currently trading at FY16 PBV of 0.94x, a discount to the industry’s 1.20x. BUY maintained on the back of attractive valuations. Key upside/downside risks to our fair value include: 1) rising asset quality risks in Thailand, Singapore and Indonesia, 2) pick up in treasury and capital market activities, 3) more severe-than-expected margin compression especially in Indonesia, and 4) successfully reduce cost to below the targeted 53% CTI, and 5) other external risk factors due to uncertainties in the global market.

Source: TA Research - 23 Jan 2017