CIMB Group - Broadly in line

Date: 30/11/2018

Source  :  HLG
Stock  :  CIMB       Price Target  :  5.80      |      Price Call  :  HOLD
        Last Price  :  5.23      |      Upside/Downside  :  +0.57 (10.90%)

CIMB’s 9M18 core net profit of RM3.37bn (+3.3% YoY) came in broadly within expectations, representing 71.6% and 70.4% of our and consensus full-year forecasts. The results were underpinned by lower loan-loss-allowance amounting by RM572m. Loan advanced by 4.9% YoY vs. 3.4% YoY in 6M18, amid commendable growth in Malaysia (+11% YoY). Deposits inched up by 3.7% YoY contributed by Malaysia by 4.4% YoY. Maintain HOLD, with unchanged TP: RM5.80 based on GGM valuations of (i) COE of 13.1% and (ii) WACC of 9.8%.

Broadly in line. Excluding RM1.09bn gains in 2Q18, CIMB delivered core net profit grew 4.2% YoY and 13.2% QoQ to RM1.17bn in 3Q18, lifting 9M18 core net profit to RM3.37bn (+3.3%), accounting for 71.6% and 70.4% of our and consensus full-year forecasts. We deem the results within expectations as we expect 4Q18 to come in stronger on higher NOII and easing provisions.

QoQ. Despite higher loan loss provision, net profit accelerated by 13.2% to RM1.17bn, aided by higher operating income (+3.3%) and lower opex (-3.4%). Operating income was helped by stable trading income and lower forex losses. Post deconsolidation of CIMB securities, fee income continued to soften.

YoY. Subdued operating income (-8.3%, arising mainly from lower NOII) were more than offset by easing loan-loss-allowance (-32.9%) and lower opex (-24.6%). NOII was hit by forex loss ofRM54m vs. a gain of RM474m in 3Q18.

YTD. Core net profit climbed by 3.3% stemming from lower loan-loss-allowance (- 33.5%), however it was partly offset by subdued operating income, of which, both NII and NOII were lower by -3.4% YoY and -18.8% YoY respectively.

Loan. Loan advanced by 4.9% YoY vs. 3.4% YoY in 2Q18, amid commendable growth in Malaysia (+11% YoY) which offset the slower loan growth in Thailand and Singapore. Wholesale banking posted better loan growth of 4.9% YoY, along with consumer and commercial segments, which posted growth of 5.4% YoY and 2.1% YoY.

Deposits. Deposits tracked loan growth, rising 3.7% YoY contributed by Malaysia by 4.4% YoY, while Singapore and Thailand saw deposits growth of 3.8% YoY and 5.6% YoY respectively. NIM of 2.49% was rather mixed on QoQ and YoY. On QoQ, NIM faster marginally by 1bps, however down -15bps on YoY driven solely by Niaga’s NIM compression which facing interest rate hike environment.

Asset quality. Gross impaired loans (GIL) ratio was flat at 3.1%. Loan loss charge remained moderate at 0.45%, vs. 0.4% in 2Q18. Loan loss coverage (including regulatory reserves) improved marginally to 107% as at from 106% as at end-June 2018.

Forecast. No Change to Our Forecast.

Maintain HOLD, with unchanged TP of RM5.80. Despite results appears flat, we of the view that income delivery in 2H18 appears challenging due to its uncertainty in provision as well as volatile currency translation. We maintain HOLD recommendation with unchanged TP of RM5.80 based on GGM valuations of (i) COE of 13.1% and (ii) WACC of 9.8%.


Source: Hong Leong Investment Bank Research - 30 Nov 2018

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