CIMB Group - CIMB Thai’s earnings affected by non-interest income BUY

- CIMB Group Holdings Bhd’s (CIMB) 93.15%-owned Thailand subsidiary CIMB Thai Bank plc (CIMB Thai) posted a much lower net earnings of THB33mil in 2QFY12 (1QFY12: THB344mil). We estimate total contribution to the group’s net earnings at only 0.3% in 2QFY12 (based on our forecasts) vs. 3.4% in 1QFY12. 

- The lower earnings stemmed mainly from a drop in non-interest income, to THB159mil in 2QFY12, from THB593mil in 1QFY12. This was due mainly to a major decline in fee income to THB64mil (1QFY12:THB367mil), as well as lower gains on securities of THB83mil (1QFY12: THB148mil) as well as loss on securities held-for-trading of THB75mil (1QFY12: gain of THB75mil).   

- CIMB Thai said that net earnings were affected by THB206mil in legal claims paid to a provident fund in accordance with a recent Supreme Court ruling against a defunct financial institution which was merged into BankThai, the predecessor to CIMB Thai. Bank Thai had earlier won the high court and court of appeals and hence, it had provisioned for the principal amount of the suit amounting to THB70mil but not for the interest charged by the court of THB136mil.  We are unclear where this was booked in, but this may have been in the fee income line, given that operating expense was relatively stable.  

- Gross loans grew 4.4% (from retail segment) on a QoQ basis while deposit growth was at 4.3% QoQ in 2QFY12. Net interest income grew 1.3% QoQ and 7.6% YoY. The company reported a NIM of 3.24% in 1HFY12, which was lower against 3.65% in 1HFY11. The company said NIM was affected by additional deposit insurance resulting from new regulations in May 2012, which was implemented retrospectively from January 2012. Stripping this off, NIM would have been at 3.33% in 1HFY12. Nevertheless, the company said NIM overall was affected by intense competition in the deposit market.    

- Gross impaired loans climbed 2.7% QoQ, taking gross impaired loans ratio to 3.5% in 2QFY12 from 3.4% in 1QFY12. The increase was due to selected accounts as well as impact from the severe flood in 4QFY11. 2QFY12’s loan loss provision was lower though at THB109mil (1QFY12: THB140mil), with credit costs at 35bps (1QFY12: 46bps). CIMB Thai’s net earnings remained volatile with continuing numerous one-off items affecting its noninterest income. However, CIMB Thai’s contribution remained small. Thus, we do not expect much impact on CIMB’s share price. Maintain BUY on CIMB. 

Source: AmeSecurities