CIMB Group Holdings Berhad - Long Term Prospects Secure

Date: 24/01/2019

Source  :  PUBLIC BANK
Stock  :  CIMB       Price Target  :  6.50      |      Price Call  :  BUY
        Last Price  :  3.70      |      Upside/Downside  :  +2.80 (75.68%)

The Group announced that it is disposing of its insurance brokerage business (CIMB Howden Insurance Brokers Sdn Bhd: CHIB)) as part of a move to further streamline existing businesses to focus on its core banking franchise. Separately, management also provided some updates earlier in the day on operations across it various geographies in its quarterly meet-up with the investment community. While there are pockets of potential weaknesses in certain business segments, none are alarmingly worrisome that would necessitate changes in views. We remain optimistic on the Group’s longer-term prospects, with its next 5-year plan to be revealed end-Feb/early-Mar envisaged to drive Group ROEs toward the 11%-12% marks (currently ~10%). Malaysia and Indonesia will be key focus areas. Our Outperform call is retained with unchanged target price of RM6.50.

  • Insurance brokerage. THE Group has entered into a share purchase agreement with HBG Asia Holdings Limited and Howden to dispose of its 51% in CHIB for RM59.6m, approval of which has already been received from Bank Negara on 27 November last year. Gains are not anticipated to be consequential.
  • Updates: On Malaysia. A significant earnings growth driver in 2018, more of the same is likely in 2019 though Indonesia and Thailand are anticipated to see improved YoY contributions. While there is some clarity on pipelines in the corporate banking segment, particularly 1H2019, outlook for the Markets segment is less encouraging as companies/clients hold back on activities in light of rising macro-based uncertainties. Loans growth should range between 5% and 6% nonetheless, with margin compressions of ~5bps anticipated.
  • On Indonesia: With fewer rate hikes anticipated in 2019, margin compressions are anticipated to be less pronounced, though still likely in the 5-10bps regions. Based on the Group’s longer-term growth strategies for Indonesia, management sees net interest margins (NIM) settling at between 4.8% and 5.0% (currently 5.1%). Near-term earnings improvements are likely to come from asset quality improvements (ie. lower provisions) given the current lack of drivers. Loans growth will be better in 2019, though not expected to be significantly better than 2018’s low single-digits. Activity is likely to be seen more toward 2H2019 given uncertainties arising from the country’s Presidential Elections in 1H.
  • On Thailand: Weakness in recent financial numbers are part-planned (higher business expansion costs due to investments in personnel and IT infrastructure), and part regulatory (topping up of general provisions deemed insufficient by the country’s central bank). Earnings growth going forward will be driven by the retail segment, specific SME segments and operational efficiencies.

Source: PublicInvest Research - 24 Jan 2019

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