PETALING JAYA: The outlook for CIMB Group Holdings Bhd remains upbeat despite its Thai arm, CIMB Thai Bank, experiencing a fall in quarter-on-quarter (q-o-q) earnings, according to Hong Leong Investment Bank (HLIB) Research.

       Although CIMB Group has yet to publish its results for the quarter ended June 30, the research house reported that CIMB Thai Bank’s net earnings for the said quarter had seen a 35% q-o-q drop due to a negative Jaws ratio brought about by weak non-interest income (NOII) and increasing operating expenditure (opex).

       The Jaws ratio is used to compare growth rates between income and expenses, and if a company’s expenses outgrow income, it is said to be undergoing negative Jaws.

       In CIMB Thai Bank’s case, total income has reduced by 13% q-o-q while opex has risen by 7%.

       HLIB Research said, in its note, that the sequential broadening in net interest margins (NIM) for CIMB Thai Bank provided some cushion, supported by steady loan growth and stable asset quality.

       “Overall, results were within estimates and hence, our forecasts were unchanged.

       “We still like CIMB for its inexpensive valuations and attractive dividend yield of 6%.

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       “Moreover, the bank has one of the largest management provision overlays as a percentage of gross loans,” said the research house.

       Comparing the quarter with the corresponding three months of 2022, CIMB Thai Bank’s earnings were 49% lower year-on-year (y-o-y) as NOII went down by 37% due to sluggish investment gains and fee income, which were exacerbated by the 59% y-o-y surge in impaired loan allowances.

       On the other hand, net loan growth had remained firm at 10.4% y-o-y, while deposits gained momentum to 10.9%.

       “As such, net loan-to-deposit ratio improved 13 percentage points sequentially to 102%.

       “Separately, asset quality remained stable given that the non-performing loan (NPL) ratio was unchanged q-o-q at 3.1%.”

       Looking at the bigger picture, the research house said despite the political instability in Thailand, the country’s recovery in private consumption and rebound in the tourism sector would continue to spur economic growth.

       The Thai economy has had a history of resilience, notwithstanding episodes of political turmoil in the past, according to the research house.

       “Overall, the NIM improvement should persist – given another likely rate hike in August – and loan growth is seen to chug along.

       “As for asset quality, we are not unduly worried as CIMB Thai has already made heavy preemptive provisions to cushion any jump in gross NPL ratio,” the research house said.

       It is maintaining its “buy” call on the CIMB Group, with a target price of RM5.85.