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This article first appeared in The Edge Financial Daily on October 23, 2018

CIMB Group Holdings Bhd
(Oct 22, RM5.98)
Maintain buy with an unchanged target price (TP) of RM7.85:
CIMB Thai’s net profit in the first nine months for financial year 2018 (9MFY18) came in marginally lower by 3.1% year-on-year (y-o-y) to 537.4 million baht (RM67.57 million). This was mainly due to higher taxation as profit before tax rose 5.9% y-o-y. Tax was 41.1% y-o-y higher to 199.2 million baht over the period.  

For 9MFY18, operating expenditure (opex) grew 10.8% y-o-y to 6.02 billion baht. The increase in opex came from higher employee expenses and others. These expanded 9.6% y-o-y to 3.3 billion baht and 24.6% y-o-y to 1.58 billion baht. However, we are not overly concerned by this as the increase was due to expansion.

Net interest income grew 4.4% y-o-y to 7.94 billion baht due to expansion in loans of 4.3% y-o-y to 219.9 billion baht. Interest income rose 3.2% y-o-y to 11.27 billion baht, while interest expense was flattish with 0.3% y-o-y to 3.33 billion baht. This was despite net interest margin (NIM) coming in -11 basis points to 3.77% lower on lower yield assets.

Provisions for 9MFY18 fell 10.3% y-o-y to 3.33 billion baht despite gross non-performing loans (NPL) remaining the same. Gross NPL was 5.7% as at the third quarter of financial year 2018 (3QFY18).

Deposits (inclusive of Bill of Exchanges, Debentures and selected Structured Deposit Products) grew 9.2% y-o-y to 231.6 billion baht. This resulted in modified loan-to-deposit falling to a reasonable 95% from 99.4% as at 3QFY17.  

We make no changes to our forecasts pending the group’s 3QFY18 results next month. CIMB Thai’s 3QFY18 results have not made us change our view that the situation in Thailand is improving with provisions remaining on a downtrend. We are also encouraged to see a robust income growth despite the NIM compression. As such, we believe the group’s business in Thailand remains sound, and it seems the group is expanding there. We do not believe CIMB Thai will be a drag to the group’s earnings. Further, we believe the group will be able to achieve its return on equity target for this year with the performance in Malaysia to continue being solid. Hence, we maintain our “buy” recommendation with an unchanged TP of RM7.85 based on pegging its FY19 book value per share to price over book value of 1.4 times. — MIDF Research, Oct 22

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