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 9.1% leading to a P/BV of 1.0x. We tweak our FY20 net profit slightly lower by 1.6% after adjusting our estimates for net interest income and opex.

• The group reported a lower core net profit of RM1.25bil (-2.1% QoQ) in 3Q19. This was after excluding a gain of RM114mil from the group’s disposal of loans, including Niaga’s sale of NPLs circa RM100mil and adjusting out RM349mil of transformation expenses.

• The transformation cost of RM349mil included MSS expenses for 1,100 employees for Niaga and 1,000 Malaysian employees who have opted to take up the FlexMyCareer scheme to exit the group. The 2,100 employees will be leaving in 3–6 months’ time. Cost savings will be RM200mil per annum from this exercise, and it will require 18 months to break even. Part of these savings will be reinvested for the Forward23 strategy.

• Core earnings for 9M19 of RM3.67bil grew 8.8% YoY. 9M19 net profit were within expectations, making up 77.6% of our and 75.8% of consensus estimates. The group delivered an ROE of 9.1% for 9M19 based on core earnings which were in line with our estimate.

• The group's gross loans moderated to 5.6%YoY (2Q19: 6.9%YoY) with a slower loan growth in Malaysia impacted by corporate repayments. Excluding FX impact, loans grew 3.9%YoY.

• NIM in slipped 3bps YTD to 2.47% mainly due to the OPR cut of 25bps in May 2019 as well as the FRS 9 adjustment on the effective interest rate (EIR) for consumer banking while margin in Indonesia was impacted by the recent 3 rates cuts and higher intensity of deposit competition.

• Opex for 9M19 rose 15.6% YoY due to investments and expenses on its Forward23 strategy (10.1% YoY excluding the MSS in Indonesia and FlexMyCareer expenses in Malaysia of RM349mil). Opex on BAU basis grew by 4.9% YoY. CI ratio based on core total income for 9M19 was 54.6% higher than our expectation of 53.0%.

• 9M19 credit cost improved to 0.38% (9M18: 0.45%). Excluding MFRS 9 enhancements in 3Q19, 9M19 credit cost was 0.51%. The group’s overall GIL ratio increased slightly to 3.15% contributed by higher impairments loans to the household and the wholesale and retail trade, and restaurants and hotels sectors.

Source: AmInvest Research - 25 Nov 2019