CIMB Group Holdings Berhad - No Surprises

Date: 30/11/2018

Source  :  PUBLIC BANK
Stock  :  CIMB       Price Target  :  6.50      |      Price Call  :  BUY
        Last Price  :  5.28      |      Upside/Downside  :  +1.22 (23.11%)

The Group reported an RM1.18bn net profit (+4.2% YoY, -40.4% QoQ) for 3QFY18, bringing 9MFY18 net profit to RM4.47bn (+30.8% YoY). Cumulative numbers are aided by one-off disposal gains excluding which, the RM3.54bn achieved is in line with our and consensus expectations at 74% of full-year estimates. Growth continued to be underpinned by the consumer banking business, from Malaysia in particular. Operating expenses (-6.4% YoY on business-as usual basis) and loan loss provisions (-30.7% YoY) continue to trend downwards, underscoring scope for earnings upsides particularly if the Group’s regional exposures make more significant turnarounds. We remain optimistic on the Group’s longer-term prospects, pockets of near-term challenges notwithstanding, and affirm our Outperform call with an unchanged target price of RM6.50.

  • Operating income is down 5.6% YoY to RM12.38bn for 9MFY18 due largely to a reduction in non-interest income as capital market activities slowed in Malaysia while weaker net interest income contributions from the wholesale banking (corporate banking, treasury, investment banking) segment also weighed, though there was a slight pickup (+20.0% QoQ) for the latter in 3QFY18. Operating expenses were down a larger 6.4% YoY to maintain its positive JAW position, this coming mainly the deconsolidation of costs (of about RM150m per quarter) from the global stockbroking business post-sale to China Galaxy Securities. Current 51.6% cost-income ratio is within touch of the 50% FY18 target.
  • Loans growth (+4.9% YoY, +7.3% excluding FX translations) was driven predominantly by the consumer banking business (+5.4% YoY) and Malaysia (+11.0% YoY) in particular. While some measure of improvement is beign seen in Thailand, Indonesia will remain decidedly weak in the near term, weighed by macro-based headwinds. The slumping Rupiah has sapped confidence while the forthcoming Presidential Election has stifled activity.
  • Net interest margin (NIM) ticked up QoQ to 2.49% (2QFY18: 2.48%). Barring further adjustments in Indonesia, full-year NIM will likely closer to 10bos as guided by management.
  • Marked reduction in loan loss provision (-30.7% YoY, or RM507m) is still a major factor in bottom-line improvement, driven by the consumer banking (- 53.2% YoY) and commercial banking (-48.6% YoY) businesses. Loan loss charge is 0.47% (2QFY18: 0.41%), gross impaired loans ratio is 3.1% (1QFY18: 3.2%) while allowance coverage ratio is 107.1% (2QFY18: 106.8%) post- MFRS9. These improving trends should be sustained going forward.

Source: PublicInvest Research - 30 Nov 2018

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