CIMB Group Holdings Berhad - Record Year

Date: 01/03/2019

Source  :  PUBLIC BANK
Stock  :  CIMB       Price Target  :  6.50      |      Price Call  :  BUY
        Last Price  :  5.25      |      Upside/Downside  :  +1.25 (23.81%)

The Group reported a record headline net profit of RM5.58bn for FY18, though the number includes an extraordinary disposal gain of RM928m from the paring down of stakes in its asset management businesses. Excluding this one-off item, business-as-usual net profit of RM4.66bn (+4.0% YoY) is in line with our and consensus expectations at 98% and 97% of full-year estimates respectively. Slippage in net operating income (-6.6% YoY) was mitigated by drops in operating expense (-5.2% YoY) and loan loss provisions (-35.8% YoY). Malaysia continues to underpin growth, and will likely remain so in the near term though we also see scope for earnings upsides particularly if the Group’s regional exposures make more significant turnarounds. We continue to remain optimistic over the Group’s longer-term prospects, pockets of near-term challenges notwithstanding, and affirm our Outperform call with an unchanged target price of RM6.50.

  • Operating income for the year is down 6.6% to RM16.45bn predominantly due to margin compressions in Indonesia which hit net interest income (-2.5% YoY to RM11.9bn) and weaker capital markets in Malaysia which hit non interest income (-16.0% YoY to RM4.55bn). Segment-wise, consumer banking was a bright spot, underpinned by contributions from the wealth management and bancassurance businesses. Operating expenses were down 5.2% YoY meanwhile though aided by deconsolidation of cost from the global stockbroking business (RM150m/quarter) and foreign exchange impacts, excluding which expenses would have risen 1.2% YoY.
  • Loans growth was a robust +7.0% YoY, driven by expansions in Malaysia (+10.5% YoY). Segment-wise, consumer banking (+7.4% YoY) and wholesale banking (+8.3 YoY) were key drivers.
  • Net interest margins (NIM) tumbled 13bps to 2.50% in 2018 due to compressions in Indonesia and year-end deposit competition in Malaysia. Expectations are for a further 5-10bps contraction in 2019.
  • Loan loss provisions dropped 35.8% YoY (RM799m), and are a key reason for 2018’s business-as-usual net profit improvement. Consumer banking (- 39.2% YoY) and commercial banking (-67.2% YoY) were biggest contributors to the decline. Annualized loan loss charge is 0.41% (FY17: 0.69%), gross impaired loans ratio is 2.9% (FY1: 3.4%) while allowance coverage ratio is 106.3% (FY17: 84.1%).
  • Forward 23 (F23). The Group also unveiled its new 5-year business plan upon successful completion of its previous T-18 initiatives. F23 is intended to accelerate growth in differentiated manners, and to future-proof the Group. Key points are highlighted in the following page (Table 2)

Source: PublicInvest Research - 1 Mar 2019

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