Investment Highlights

• We are downgrading our call on CIMB Group Holdings (CIMB) to a HOLD from BUY with a lower FV of RM5.30/share (previously RM6.00/share) based on a lower FY20 ROE of 8.2% leading to a P/BV of 0.9x. We trim our FY20/21 net profit by 3.4%/9.0% after factoring in another rate cut of 25bps in the 1H 2020 in addition to the OPR cut of 25bps in Jan 2020. Also, we have adjusted estimates for CI ratio.

• CIMB reported a core net profit of RM1.1bil (-11.6% QoQ) in 4Q19. This was after excluding a gain of disposal of loans of RM41.3mil and RM12mil of transformation expenses, and a write-off of RM277mil intangible assets.

• On the transformation cost, which 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, cost savings will commence in 2Q20. However, part of these savings will be reinvested for the Forward23 strategy. Hence, the fullyear RM200mil cost savings will only be realized in FY21.

• Core earnings for 12M19 of RM4.77bil grew 6.2% YoY. 12M19 net profit was within expectations, making up 100.8% of our and 97.7% of consensus estimates. The group delivered an ROE of 8.8% for 12M19 based on core earnings which were slightly below our estimate of 9.0%.

• The group's gross loans accelerated to 6.7% YoY with stronger loan growth in Malaysia but was partially offset by slowdown of loans in Indonesia and Thailand. Excluding FX impact, loans grew 5.5% YoY.

• NIM in slipped 4bps YoY to 2.46% mainly due to the OPR cut of 25bps in May 2019, the FRS 9 adjustment on EIR for consumer banking and compression of margins in Thailand.

• Opex for 12M19 rose 14.1% YoY due to investments and expenses on its Forward23 strategy (9.8% YoY if excluding the MSS in Indonesia and FlexMyCareer expenses in Malaysia of RM349mil). BAU opex growth, excluding FX and incremental investment cost was 4.2% YoY. CI ratio based on core total income for 12M19 was 54.7%, which is higher than our expectation of 53.0%.

• 12M19 credit cost came in at 0.44% (12M18: 0.41%). Excluding MFRS 9 enhancements, 12M19 credit cost was 0.55%. The group’s overall GIL ratio inched up to 3.07%.

• A second cash interim dividend of 12 sen/share has been proposed, bringing total dividends to 26 sen/share (payout: 56.0% in FY19 vs. 42.0% in FY18). This was in line with our estimate for FY19.

Source: AmInvest Research - 2 Mar 2020