CIMB Group - Lingering effects from Thailand's floods BUY

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD

Research House: AMMB

Price Call: BUY

Target Price: 8.00

- CIMB Group Holdings Bhd's (CIMB) 93.15%-owned Thailandsubsidiary CIMB Thai Bank plc (CIMB Thai) recorded net earnings of THB344mil in1QFY12 ' an 18% QoQ drop from 4QFY11's THB417mil. 

- However, 4QFY11 included a couple of one-off items. Firstwas the gain of THB1,101mil from the share of gain of NPL sale from thegovernment-owned Thai Asset Management Corporation (TAMC), which was set up in2001 to deal with non-performing loans (NPL) of the Thai banking industryarising from the 1997-1998 crisis. Secondly, CIMB Thai also raised loan loss provisionsubstantially to THB790mil in 4QFY11, from THB124mil in 3QFY11, partly due toclean-up provisioning (circa THB500mil) and partly to raise its generalprovision rate from below 1% to 1.2%, in line with the industry average. 

- Thus, the 1QFY12 earnings reflect a more normalised trendif compared to 4QFY11. We estimate net earnings in Ringgit terms at RM35mil,which would mean a contribution of 2.9% at the pre-tax level and 3.5% at thenet earnings level if based on our group pro-rated forecasts for 1QFY12F.Overall, CIMB Thai's earnings are in line with our estimates.   

- Loans posted a decline of 0.7% QoQ, which we believe wasdue to a time lag in dealing with the flood situation in Thailand. However, weunderstand that loans have picked up recently. Deposit grew 7.8% QoQ. LDR(including bills of exchange) eased to 88.0% in 1QFY12 from 88.8% in4QFY11. 

- Gross non-performing loans (NPL) increased slightly QoQ toTHB4.3bil in 1QFY12 from THB4.1bil, attributed to deterioration in creditquality of certain sizable corporate accounts. We believe this was related tothe floods. The NPL is also distorted by certain borrowers who took up the loanrepayment moratorium that was granted due to the flood situation, but who, webelieve, would now need to resume repayments. CIMB Thai's loan loss provisionis now more normalised at THB140mil in 1QFY12, leading to estimated creditcosts of 46bps (4QFY11: 267bps).  

- Based on 1QFY12 results, we believe that CIMB Thai'soperations remain soft, with a likely ongoing impact from the floods. However,CIMB Thai's contribution to overall group remains small. Thus, we do not expectmuch of an impact on CIMB's share price. We maintain BUY on CIMB with fairvalue of RM8.00.

Source: AmeSecurities