Investment Highlights

• We maintain our BUY call on CIMB Group Holdings (CIMB) with an unchanged FV of RM6.00/share based on FY20 ROE of 9.2% leading to a P/BV multiple of 1.0x. Our earnings estimates are unchanged as we have factored into our estimates another OPR cut of 25bps in 2H19 earlier.

• 2Q19 core net profit came in at RM1.27bil (+8.2% QoQ) after excluding a gain of RM236mil from the group’s disposal of the Malaysian equities business to China Galaxy Securities (CGS). The sale of the securities business has resulted in negative 8bps impact on the group’s CET1 ratio. 2Q19 saw an improvement in trading and FX income (+28.7% QoQ)

• Core earnings for 6M19 of RM2.45bil grew 11.6% YoY. 6M19 net profit were within expectations, making up 51.1% of our and 50.3% of consensus estimates. The group delivered a ROE of 9.2% for 6M19 based on core earnings which were in line with our estimate.

• By segment, consumer banking’s PBT fell due to lower operating income, higher provisions and the MFRS 9 adjustments with changes to effective interest rates (EIR). Commercial banking profits improved on back of lower provisions in Thailand and Indonesia. Meanwhile, PBT for wholesale banking rose from improvements in capital market activity and decline in provisions. Group venture, & partnerships (GVP) and funding’s PBT rose from an improvement in fixed income portfolio.

• The group's gross loans grew by 6.9% YoY (1Q19: 7.6% YoY). Excluding FX impact, loans growth was 4.9% YoY.

• NIM slipped 4bps YTD to 2.46% mainly due to the OPR cut of 25bps in May 2019 as well as the FRS 9 adjustment on EIR for consumer banking.

• Opex for 6M19 rose 8.7% YoY due to investments and expenses on its Forward 23 strategy. Opex on BAU basis grew by 3.7% YoY. CI ratio based on core total income for 1QFY19 was 55.5% higher than our expectation of 52.0%. JAW for 6MFY19 was 54.8% after excluding all one-off gains.

• 6M19 credit cost improved to 0.35% (6M18: 0.45%). The group’s overall GIL ratio increased to 3.12% with the upticks largely in Malaysia as loans to company in the manufacturing sector had been impaired. We understand loans to this borrower will be restructured or rescheduled. FRS 9 enhancements have resulted in some write-backs on expected credit losses (ECL)

• An interim dividend of 14 sen/share (payout: 50.4%) has been proposed. 

Source: AmInvest Research - 30 Aug 2019