CIMB Thai's FY24 earnings was supported by improving asset quality and credit cost, which we are hopeful to have seen the worst behind it. While CIMB Thai's ROE of 6% is lagging behind the group's overall target of 11.5%, a better foothold in consumer market could uplift future earnings gradually. CIMB Thai typically makes up 3%-6% of overall group earnings. We maintain our forecast for CIMB, GGM- derived PBV TP of RM7.60 and MARKET PERFORM call.

94.8%-owned CIMB Thai reported FY24 net profit of THB2.85b, which surged by 78%, translating to RM375m or 5% of our overall earnings estimate, well within its historical contribution of 3%-6% to the group.

YoY, FY24 net interest income of THB9.47b declined by 3% in tandem with softer NIMs at 3.82% (-25 bps) despite loans improving by 3%.

Meanwhile, total operating income rose by 10%, supplemented by better net fee-based income (+20%) and investment gains (+72%) amid fewer NPL sales, overall bringing CIR down to 58.7% (-4.0 ppt), and for PPOP to grow by 3%.

Credit cost of the year also improved to 108 bps (-21 bps) supported by a lower NPL of 2.6% (-0.7 ppt) as a result of CIMB Thai's ongoing efforts to tighten its corporate books to focus on better quality consumers portfolio. It continued to top up its loan loss coverage, closing at 137.9% (+13.7 ppts). All in, this led to the 78% increase in net earnings.

QoQ, 4QFY24 net earnings also reported significant gains (+61%), mainly thanks to the same gains on investments amid NIMs declining by 44 bps, likely from a more competitive year-end season.

CIMB Thai's outlook. The stabilisation of Thailand's political landscape following the recent installation of a new prime minister would support a better operating environment for businesses and investments. While CIMB Thai's earnings improvement appears commendable, there is still more to be desired from its FY24 ROE of 5.8% against its local peer average of 8%. The group continues to deploy more retail-centric strategies to once again minimise its exposure to riskier non-consumer accounts. According to CIMB Group's 3QFY24 presentation, CIMB Thai's commercial loans only make up 2% of its total books, mostly comprising consumer (64%) and wholesale (34%).

Forecasts. Maintained.

Maintain MARKET PERFORM and TP of RM7.60. Our TP is based on an unchanged GGM-derived FY25F PBV of 1.05x (COE: 11.2%, TG: 3.5%, ROE: 11.5%). We also applied a 5% premium granted by CIMB's 4-star ESG ranking, thanks to its headways in green financing. CIMB's return to double-digit ROE could be indicative of its prospects while offering attractive dividend yields (c.6%) in the medium term. That said, its regional diversification now poses downside risks as seen in CIMB Niaga's lowering of NIM guidance as markets there are becoming unfavourable. Its current share price appears to have fully priced in a FY24 ROE of 11.5%, which we have applied in our valuation. We await the unveiling of its FY25 and onwards strategies before we reassess CIMB's medium-term trajectory.

Risks to our call include: (i) higher/lower-than-expected margin squeeze, (ii) higher/lower-than-expected loan growth, (iii) better/worse- than-expected asset quality, (iv) changes in capital market activities, (v) currency fluctuations, and (vi) changes to the OPR.

Source: Kenanga Research - 22 Jan 2025