CIMB Group - All round improvements

Date: 24/01/2019

Source  :  Rakuten
Stock  :  CIMB       Price Target  :  6.05      |      Price Call  :  BUY
        Last Price  :  5.29      |      Upside/Downside  :  +0.76 (14.37%)

FY1 8E full-year performance will be mixed, dragged by soft capital market activities but loans will be on target with surprises likely coming from lower-than-guided credit costs as asset quality is stable and unlikely to deteriorate further. BUY with a Target Price at RM6.05 based on an PB/PE of 1.0x/12.0x to reflect the on-going challenges ahead namely: (i) moderating loans, (ii) downside pressure on NIMs, and (iii) soft capital market activities. 

We understand from management that FY18E loans target growth of 6% is achievable driven by resilient retail spending and supported by pickup in corporate loans in 4Q18. Moving forward into FY19, management guided that its pipeline for corporate loans will be decent and sustainable into 1H19. We find its 6% loans growth target for FY19 to be challenging given that it is expected to be retail driven while corporate loans are likely to taper in 2H18 in line with the expected slowdown. 

FY19E loan mix will be different from 2018 as Malaysia's loans growth to moderate (unlikely to be in high single-digit) while loan book is expected to be driven by improved performance from Indonesia, Thailand and Singapore. Management expects Niaga's 2019 loans to be driven by retail spending. Moderation in 2019 Malaysia's loans growth will likely be from weaknesses in the property market, but management expects mortgages to maintain above industry growth. 

Management highlighted satisfactory asset quality across the board and better asset quality for the Group for 2019. Uptick in CIMB Thai's credit cost seen recently will have no bearing for the Group's as it had made provisions as per IFRS9 requirements at the Group level. Going forward, we estimate CIMB Thai's credit costs (for FY19) to range at 200-230bps as we expect additional provisioning as a pre-emptive measure for FRS9 in 2020. For Indonesia, credit costs will likely range at 150-200bps as interest rates are expected to be stable going into 2019.

Source: Rakuten Research - 24 Jan 2019

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