Investment Highlights

• We downgrade our recommendation on CIMB Group Holdings (CIMB) to SELL from HOLD with a lower FV of RM3.00/share (previously RM3.60/share) based on a lower FY20 ROE of 5.1%, leading to a P/BV of 0.5x. We trim our FY20/21 net profit by 21.6%/17.1% to reflect higher credit cost of 1.00%0.95%.

• CIMB reported a lower 1Q20 core net profit of RM508mil (-56.8% YoY) due to a weaker NOII from a decline in FX and trading income coupled with higher provisions.

• 1Q20 net profit was below expectations, accounting for 13.5% of our and 12.5% of consensus estimates. The group delivered a low ROE of 3.7%.

• The group's gross loans decelerated to 3.8% YoY largely due to slowdown of loans in Malaysia and Singapore. Malaysia loans grew 4.4% YoY, higher than the industry growth of 4.0% YoY.

• NIM slipped 9bps QoQ to 2.44% mainly due to the OPR cuts of 25bps each in Jan and Mar 20 in Malaysia. Also, the interest margin compression was contributed by a 50bps reduction in benchmark interest rates in Indonesia (25bps each in Feb and Mar 2020).

• Opex for 1Q20 grew marginally by 0.7% YoY (-0.1% YoY excluding FX impact). Except for higher marketing expenses for Touch ‘n Go, personal, establishment, admin and general expenses were well controlled. Twothirds of its capex for this year will be deferred. CI ratio for 1Q20 climbed to 56.0% due to the weaker revenue.

• 1Q20 credit cost came in higher at 106.0% driven largely by the full provision of RM430mil for the default of loans extended to an oil trader in Singapore. Also, there were higher provisions for consumer loans in Malaysia due to rise in delinquency of circa RM100mil and a top-up in provisioning for corporate loans in Indonesia.

• Apart from allowances taken for loans, the group also reported provisions of RM52mil for undrawn facilities and RM109mil for the foreclosure of assets in Thailand.

• CIMB’s overall GIL ratio rose to 3.43% from 3.07% in the preceding quarter underpinned largely by the increase in loans impairments in Malaysia, Singapore and Indonesia.

Source: AmInvest Research - 27 May 2020