CIMB Group Holdings - Aided By Lower Impairments

Date: 01/03/2019

Source  :  KENANGA
Stock  :  CIMB       Price Target  :  6.10      |      Price Call  :  HOLD
        Last Price  :  5.26      |      Upside/Downside  :  +0.84 (15.97%)

12M18 results were roughly in line accounting for 94% of our core earnings estimate. We lower our FY19E earnings by 2% on account of slower loans and NIM compression. TP raised to RM6.10 and MARKET PERFORM call maintained.

Roughly in line. CIMB recorded a 12M18 NP of RM5.58b, exceeded expectation, accounting for 117%/118% of our/market estimates due to the RM1.1b (disposal of 20% stake in CIMB Principal Asset Management & 10% stake in CMP Islamic Asset Management). Stripping of these gains, CNP is RM4.5b, roughly in line with our/market estimates of 94%/95%. A final DPS of 12.0 sen was declared bringing total DPS/payout ratio of 25.0 sen or 51% payout (vs. our expectations of 24.0 sen and payout ratio of 40%).

YoY, 12M18 CNP surged ahead, (+25%) to RM5,583m on account of the RM1,090m gains. Stripping of gains, CNP would be relatively flat (+0.4%). Top-line was abysmal, falling 7% to RM16.3b with both NOII and NII falling 8% and 19%, respectively. Operating profit was flat due to opex and impairment allowances falling 5% and 35%, respectively, with PBT surging 18% due to the gains and share of results. PBT contribution from Malaysia was at 64% (vs FY17: 69%) followed by Indonesia (20% vs 21% in FY17). CIR of 53% was above guidance/expectation of 50%/51%. Group loans of +7% exceeded expectations/guidance 5.5%/6% with domestic loans growing above systems (1+0.5% vs +5.6%) with mortgages and working capital the driver at 9% and 6%, respectively. Reported NIM fell 13bps due to compression from funding pressure mostly from Malaysia (vs. guidance of 5-10bps compression. On a positive note, asset quality improved with GIL falling 65bps to 3.1% and credit charge fell 26bps to 0.43% (vs guidance and estimation of 50-60bps).

QoQ, CNP fell 5% to RM1.17b as top-line was weak (-1.6%) and higher tax rate (26% vs 3Q18: 20%). Top-line was dragged by falling NOII (- 9%) with NII relatively flat (+0.8%). Loans moderated (+2%) while mortgages continued its traction (+3%) while working capital moderated (+1%). Asset quality was mixed with a 10bps uptick in GIL to 3.2% but credit charge 14bps to 0.34%.

Cautious outlook. Keeping in line with the cautious outlook ahead, CIMB outlines its targets for FY19E; i) loans at ~6%, ii) credit costs at 40-50bps, iii) NIM compression of 5-10bps, and iv) ROE at 9-9.5%. Our assumptions; i) loans growth at ~5.5%, ii) credit cost at 45bps, iii) NIM compression of 10bps, and iv) ROE of 8.4%. Coming from a low base, we pencilled in a 7.5% growth in NOII but expect a contribution of 26 to to the -line (vs(vs.18: 25%).

Revised earnings. We lowered our FY19E earnings by 2.4% to RM4.7b. We introduce our FY20E earnings, where we expect higher risks.

TP raised but call maintained. We raised our TP to RM6.10 (from RM6.05) based on a target PBV of 1.0x implying a 0.5SD-level below its 5-year mean to reflect the on-going challenges ahead. Reiterate

MARKET PERFORM. Key risks to our call are: (i) steeper margin squeeze, (ii) higher-thanexpected loans & deposits growth, (iii) lower-than-expected rise in credit charge, and (iv) further slowdown in capital market activities

Source: Kenanga Research - 1 Mar 2019

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