CIMB Group - Bolstered by Lower Allowances and Disposal Gains

Date: 30/11/2018

Source  :  Affin Hwang Capital
Stock  :  CIMB       Price Target  :  6.10      |      Price Call  :  HOLD
        Last Price  :  5.28      |      Upside/Downside  :  +0.82 (15.53%)

CIMB’s 9M18 net profit of RM4.47bn was up 30.8% yoy, bolstered by asset disposal gains totalling RM1.1bn, lower overheads (due to business recalibration) and lower impaired loan allowances. Results were in line with Affin’s and consensus estimates. The 9M18 core net profit of RM3.54bn saw a 3.6% yoy growth, as operationally, fund-based income was down as a result of the weak Indonesian operations. Consumer banking (accounting for 49% of 9M18 group PBT) saw a strong 23% yoy jump in PBT, while commercial banking (10% of group PBT) saw a 69% jump in PBT due to business recalibration. The wholesale banking unit was affected by weaker capital markets returns and higher provisions. Maintain HOLD and PT at RM6.10 (1.14x CY19E P/BV target).

9M18 Headline Net Profit +30.8% Yoy; Core Net Profit +3.6% Yoy

CIMB Group reported 9M18 net earnings of RM4.47bn (+30.8% yoy), while on a core basis, net profit grew at a modest 3.6% yoy to RM3.6bn. Its 9M18 core operating income has been weak, down 6.8% yoy due to weaker fundbased income that fell 3.4% yoy in 9M18. Though the 3Q18 group NIM stabilized at 2.49%, it was however down by 15bps yoy to 2.52% for 9M18 as a result of funding cost pressure on its Indonesian operations. We expect CIMB’s NIM to stabilize at c.2.5% for 2018E as deposit competition may put more pressure on funding cost. Meanwhile, lower impaired loan allowances (down 30% yoy; 9M18 credit cost at 45bps vs. 68bps in 9M17) and disposal gains bolstered the overall net profit for 9M18.

A More Cautious Outlook for Indonesian Operations in 4Q18 and 2019

Our view remains unchanged – we anticipate a moderation in business activities in Indonesia in 4Q18 and 1H19 prior to the general election (to be held in April 2019). On the domestic front, more business-friendly policies and government agendas to improve the overall welfare of the peole should continue to boost positive sentiment in the country.

Maintain HOLD, PT Unchanged at RM6.10 (1.14x CY19E P/BV)

Maintain HOLD with Price Target of RM6.10, based on a 1.14x P/BV target on CY19E BVPS (based on 2019E 9.3% ROE and 8.8% cost of equity). We make no revisions to our forecasts. For 2018E, our key assumptions include loan growth at 4% yoy, NIM at 2.48%, credit cost at 58bps and CIR at 49%. Downside risk: deterioration in asset quality. Upside risks: macro improvement and reduced competition.

Source: Affin Hwang Research - 30 Nov 2018

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