CIMB Group - Weaker revenue growth after excluding one-off gains

Date: 01/03/2019

Source  :  AmInvest
Stock  :  CIMB       Price Target  :  5.80      |      Price Call  :  HOLD
        Last Price  :  4.80      |      Upside/Downside  :  +1.00 (20.83%)

Investment Highlights

  • We maintain our HOLD call on CIMB Group Holdings (CIMB) with a revised fair value of RM5.80/share from RM6.30/share. Our revised FV is based on a lower FY19 ROE of 9.4% leading to a P/BV multiple of 1.0x. We trim our FY19/20 earnings by 0.6%/1.7% after adjusting our credit cost estimate to 0.50% (previously: 0.52%). Also, we raise CI ratio assumptions to take into account the investment expenses for the group’s Forward23 strategy.
  • 4QFY18 core net profit came in at RM1.11bil (-5.3%QoQ). For 12MFY18, the group reported a core net profit of RM4.49bil (+1.2%YoY) after excluding one-off gains of RM1.09bil from partial disposals of CSI, CPAM and CPIAM. Core revenue growth was weak for 12MFY19 due to softer non-interest income (NOII) from weak capital markets in Malaysia and the pressure on NIM in Indonesia which had impacted Niaga’s interest income.
  • Cumulative core earnings were within expectations, making up 95.5% of our and 94.6% of consensus estimates. ROE for FY18 based on core earnings was 9.0% vs. our expectation of 9.5%.
  • By segment, consumer banking continued to contribute strongly to group earnings with higher revenue and lower provisions while commercial banking profits improved on the back of lower cost and provisions after the recalibration of regional business. Meanwhile, IB and markets business turned softer in 4QFY18 after improving in 3QFY18. The market continues to be volatile and this will continue to pose challenges for wholesale banking.
  • The group's gross loans picked up pace to 6.8%YoY from 4.8%YoY in the preceding quarter. Excluding FX impact, loans growth was 7.4%YoY.
  • Group NIM slipped 4bps QoQ to 2.45% in 4QFY18. Margin is expected to further contract in FY19 largely due to pressure on Niaga’s NIM as well as structural changes in the Malaysian mortgage book which will cause a decline in asset yield.
  • Opex for 12MFY18 fell 5.2%YoY, benefitting from the deconsolidation of CSI which provided cost savings RM150mil per quarter as well as due to FX impact. Excluding FX impact, Opex decreased by 1.4%YoY. CI ratio based on core total income for FY18 was 53.1%. JAW for FY18 was -2.3% after excluding all one-off gains.
  • FY18 credit cost improved to 0.41% from FY17’s 0.69%. The group’s overall GIL ratio declined to 2.91% supported by recoveries and write-offs.
  • The group declared a second interim dividend of 12 sen/share, bringing the full-year dividends to 25 sen/share (payout: 52.1% based on core EPS. Full-year dividend payments were in line with our expectation.

Source: AmInvest Research - 1 Mar 2019

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