CIMB Group Holdings - Still Dismal

Date: 30/11/2018

Source  :  KENANGA
Stock  :  CIMB       Price Target  :  6.05      |      Price Call  :  HOLD
        Last Price  :  5.30      |      Upside/Downside  :  +0.75 (14.15%)

A disappointing set of 9M18 results, accounting for 68% of our earnings estimate. While management maintained its guidance, we lowered our FY18E earnings by 2% on account of slower loans and NIM compression. TP and call lowered to RM6.05 and MARKET PERFORM, respectively.

Below expectations. At first glance, the group recorded 9M18 NP of RM4.47b which exceeded expectations, accounting for 89%/93% of our/market estimates due to gains of RM1.09b (disposal of 20% stake in CIMB Principal Asset Management & 10% stake in CMP Islamic Asset Management). Stripping off these gains, CNP is at RM3.37b accounting for only 68%/70% of our/market estimates. No dividend is declared, as expected.

Fund and fee-based income a drag. YoY, 9M18 CNP surged ahead, (+31%) to RM4,466m on account of the RM1.1b gains. Top-line was abysmal, falling 7% to RM12.2b as NII and NOII fell 9% and 16% respectively, mitigated by surging Islamic banking income (+21%) as Islamic financing grew (+31%). Loans growth was registered at +4.5% (below guided/expectations of 6%/6% & vs. systems’ of ~6%). Malaysia is still the largest contributor to group’s loans (+3ppt from 9M17 to 60%), Indonesia at 16% (falling by 3ppt) while Thailand and Singapore maintained their contribution at 9% each. NIM continued to be under pressure falling >20bps to 2.4% (due to pressure from Niaga). Bulk of the weak NOII was due to lower gains in dividend and brokerage income (RM141m vs 9M17: RM363m). Cost was contained with CIR at 52% (below the guided 50% vs industry 47%). In terms of PBT contribution, Malaysia fell 2ppt (from 9M17) to 65%, with Indonesia fell 2ppt to 18% with Thailand and Singapore at +3 and 1+ppt to 7% both. Improvement from Thailand and Singapore was due to lower provisions (Thailand) and deconsolidation of CSI (Singapore). On a positive note, asset quality continues to improve, with GIL falling 40bps to 3.1% and credit charge falling 22bps to 0.46% (below guidance/expectations of <0.55%. QoQ, CNP of RM1,180m (-40%). Stripping of RM946m gains in Q2, CNP improved by +14% due to top- line rebounding +4.5% to RM4,140m mainly due to rebound in both NOII (+19.5%) and NII (+1.9%) as Islamic banking was relatively flat. Asset quality is mixed for the quarter with GIL falling 10bps to 3.1% and uptick (+6bps) in credit charge to 0.48%.

Loans target maintained. Improving asset quality with no sign of distress across the board is keeping impairment allowances below guided and management revised its credit charge guidance to <50bps. While NIM pressure is a concern, management maintained its guidance of 5-10bps compression on stabilization across the region, but Niaga’s NIM might dip <5% (previously ~5). Loans target of ~6% is still maintained with Malaysia as the driver; from consumer and corporate segments.

Revised earnings. We lowered our FY18E/FY19E earnings by 4%/4% to RM4.8b/RM4.8b as we revised our assumptions as follow: (i) loans growth of ~5.5% (6% previously)/5.2% (unchanged), (ii) NIM at -10bps (previously 5bps)/-5bps (-2bps previously), and (iii) credit charge of 50/51 bps (from 55/55 previously). TP and call lowered. Our TP is now at RM6.05 (from RM6.15) based on an unchanged PB/PE of 1.0x/12.0x with the PB 0.5SD-level below its 5-year mean to reflect the on-going challenges ahead. Downgrade to MARKET PERFORM as potential returns are <10%.

Source: Kenanga Research - 30 Nov 2018

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