CIMB Group Holdings - Exceptional boost to CIMB Thai’s 3Q Buy

- CIMB Group Holdings Bhd’s (CIMB) 93.15%-owned subsidiary CIMB Thai Bank plc (CIMB Thai) recorded a large increase in net earnings to THB1,048mil in 3QFY12, from  low base of THB33mil in 2QFY12 (1QFY12: THB344mil). We estimate total contribution to the group’s net earnings at only 10.0% for 2QFY12, from 0.3% in 2QFY12 and at a normalised 2%-3%. 

- The large increase was due to shared gains from Thai Asset Management Corporation and gains on investment in a CIMB Thai bank’s subsidiary. The government-owned Thai Asset Management Corporation (TAMC) was set up in 2001 to deal with non-performing loans (NPL) of the Thai banking industry arising from the 1997-1998 crisis. CIMB Thai benefitted from shared gains from the sale of NPL. While there was no further disclosure on details, the two exceptional gains are likely to have contributed to the large other operating income line of THB1,469mil in 3QFY12 vs. THB38mil in 2QFY12.  

- Gross loans grew 8.6% on an annualised basis or 2.7% QoQ, attributed to retail loans growth. Deposit growth was stronger at 8.9% QoQ or at an annualised rate of 29.9%. NIM dropped to 3.20% in 3QFY12 from 3.63% in 3QFY11, mainly due to the additional deposit insurance which was introduced in May 2012. The regulation was applied retrospectively on deposits held from January 2012. Additionally, there was further pressure from intense competition in deposit. 

- Gross NPL ratio was stable at 3.5% in 3QFY12, unchanged from 2QFY12’s 3.5%. We estimate only a marginal uptick in NPL, of 2.7% QoQ. However, loan loss provision rose sharply to THB813mil in 3QFY12, from THB109mil in 2QFY12, which likely reflect a more conservative stance. Loan loss cover rose to 89% in 3QFY12 (2QFY12: 75%). 

- CIMB Thai’s net earnings remained volatile on a quarterly basis given continuous flow of exceptional items. Operationally, we get the sense that the group may be more focused on bringing in deposit first before focusing on loan growth. While loan loss provisioning appears to be volatile, there is some comfort in CIMB Thai’s stable NPL ratio. At the moment, CIMB Thai’s contribution remained relatively small. With the constant flow of exceptional items each quarter for CIMB Thai, we do not expect the latest quarterly results to rerate CIMB shares. However, we maintain buy on CIMB on the basis that its overall noninterest income for the group should remain strong.   

Source: AmeSecurities