Investment Highlights

• We maintain our BUY call on CIMB Group Holdings (CIMB) with a revised fair value to RM6.00/share from RM5.80/share after rolling over our valuation to FY20. Our revised FV is based on FY20 ROE of 9.4% leading to a P/BV multiple of 1.0x. Our earnings estimates are unchanged.

• 1QFY19 core net profit came in at RM1.18bil (+5.3% QoQ; +2.0% YoY) after excluding a gain of RM15.8mil from the group’s disposal of its 51.0% stake in CIMB Howden Insurance Brokers.

• Core earnings were within expectations, making up 24.1% of our and 23.8% of consensus estimates. ROE for 1QFY19 based on core earnings was 9.0%, in line with our estimate.

• By segment, consumer banking’s PBT fell due to lower non-interest income (NOII) from a weaker wealth management and bancassurance fee income while the division’s operating expenses rose due to its expansion in Thailand and Indonesia. Commercial banking’s profits improved on back of lower provisions in Thailand and Indonesia as well as decent loan growth. Meanwhile, PBT for wholesale banking in 1QFY19 slip owing to higher provisioning for corporate loans in Malaysia and Indonesia despite a recovery in revenue. Group venture, & partnerships (GVP) and funding’s PBT dropped due to a non-repeat of 1QFY18’s gain of RM152mil from disposal of stakes in CSI.

• The group's gross loans picked up pace to 7.6% YoY from 6.8% YoY in the preceding quarter. Excluding FX impact, loan growth was 6.3% YoY.

• NIM in 1QFY19 improved by 3bps QoQ to 2.48% contributed by Niaga’s better margins with the gradual upward repricing of its loans following a series of interest rate hikes in Indonesia.

• Opex for 1QFY19 rose by 7.5% YoY due to investments and expenses on its Forward23 strategy. Personal cost in Malaysia and Thailand climbed. Opex on BAU basis grew by 3.4% YoY. CI ratio based on core total income for 1QFY19 was 55.5% higher than our expectation of 52.0%. JAW for 1QFY19 was -8.0% after excluding oneoff gains.

• 1QFY19 credit cost improved to 0.34% from 1QFY18’s 0.49%. The group’s overall GIL ratio edged up to 2.99%.

Source: AmInvest Research - 30 May 2019