CIMB Group - Soft topline growth with ROE trailing group’s target

Date: 30/11/2018

Source  :  AmInvest
Stock  :  CIMB       Price Target  :  6.30      |      Price Call  :  HOLD
        Last Price  :  5.21      |      Upside/Downside  :  +1.09 (20.92%)

Investment Highlights

  • We maintain our HOLD call on CIMB Group Holdings (CIMB) with an unchanged fair value of RM6.30/share. Our FV is based on FY19 ROE of 9.7%, leading to a P/BV multiple of 1.1x. We trimmed our FY19/20 earnings marginally by 1.7%/1.7% after tweaking our credit cost and CI ratio assumptions.
  • 3QFY18 core net profit came in at RM1.18bil (+13.2%QoQ; +4.2%YoY). For 9MFY18, the group reported a core net profit of RM3.38bil (-1.1%YoY) after taking out one-off gains totalling RM1.09bil from partial disposals of CSI, CPAM, CPIAM. Earnings were within expectations, making up 71.7% of our and 70.4% of consensus estimates. ROE for 9MFY18 based on core earnings was 9.1% vs. our expectation of 9.5% for the full FY18.
  • By segment, consumer banking continued to contribute strongly to the group earnings with higher revenue while commercial banking earnings improved on the back of lower cost and provisions after the regional business recalibration. Meanwhile, IB and markets business gained traction in 3QFY18, improving from 2QFY18.
  • Total income growth has been modest for 9MFY18 with the softer NII of commercial and wholesale banking.
  • The group's gross loans continued to pick up momentum to a growth of 4.8%YoY from 3.3%YoY in the preceding quarter. Excluding the FX impact, the group’s loan growth was 7.3%YoY.
  • Group NIM was stable QoQ at 2.49%. Pressure remains on Niaga’s NIM due to the potentially further rate increase in Indonesia.
  • NOII improved in 3QFY18 due to better capital market activities compared with 2QFY18. Markets remain volatile and we do not expect a significant improvement in NOII in 2HFY18 to offset the weakness in 1HFY18. Hence, excluding one-off gains, its target of achieving an ROE of 10.5% for FY18 looks to be tall order.
  • Opex for 9MFY18 declined 6.4%YoY benefitting from the deconsolidation of CSI giving rise to a cost savings RM150mil per quarter as well as due to the FX impact. Excluding the FX impact, opex declined by 2.1%YoY. CI ratio based on core total income for 9MFY18 was 52.3%. JAW for 9MFY18 was slightly negative at 0.4% after the excluding all one-off gains.
  • 9MFY18 credit cost improved to 0.45% from 9MFY17’s 0.67%.
  • The group's impaired loans in 3QFY18 fell by 0.7%QoQ to RM10.5bil. Arising from this, the overall group GIL ratio declined to 3.07% in 3QFY18 from 3.17% in 2QFY18.
  • As at the end of 3QFY18, the group’s CET1 ratio remained healthy at 12.3%, on track to meet its T18 target of 12.0%.

Source: AmInvest Research - 30 Nov 2018

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