Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB), with a higher fair value of RM6.70/share (previously RM6.30/share). Our revised fair value is based on a higher FY18F ROE of 10.4% (previously 9.9%) leading to P/BV of 1.2x.

• We have raised our net profit estimate for FY17/18/19 by 3.4%/5.1/3.8% respectively to account for higher noninterest income (NOII) as well as a lower CI ratio assumption for FY18 and FY19.

• 1QFY17 core net earnings came in strongly with a growth of 45.0%YoY to RM1.18bil. The improvement was driven by higher NOII of 37.3%YoY from better capital market activities and higher net interest income (NII) of 11.0%YoY on the back of improved NIM and loan growth. Annualised ROE for 1QFY17 was robust at 10.3% against our expectation of 8.9% for the full FY17.

• Earnings were within expectations, accounting for 28.6% of our and 27.3% of consensus FY17F net profit.

• Gross loans gained momentum with a higher growth of 12.1%YoY (excluding FX translation impact: 6.8%YoY) from the acceleration of loans across all divisions (consumer, commercial and wholesale banking). Loan growth was driven largely by Malaysia while that of Thailand, Indonesia and Singapore was flat.

• 1QFY17 saw a higher NIM by 3bps QoQ or 10bps YoY to 2.72%. On a YoY basis, the improvement was supported by higher NIM in Thailand, Indonesia and Singapore. Meanwhile, NIM in Malaysia was flat.

• The group reported a positive JAW of 9.7% with a growth in operating income which outpaced that of OPEX. CI ratio in 1QFY17 was 52.6%, in line with our estimate.

• On a quarterly basis, the group's impaired loan balance declined by 3.3% in 1QFY17. GIL ratio improved marginally to 3.2% from 3.3% in the preceding quarter.

• 1QFY17 credit cost improved to 0.52% from 0.93% in 4QFY16 and 0.64% in 1QFY16. On a YoY basis, the improvement was partly contributed by higher recoveries.

• Group CET1 ratio improved 20bps QoQ to 11.5% for FY17 and is on track to meet its FY17 target of >11.5%.

• No dividend has been declared for this quarter.

• The improved outlook for capital market activities coupled with the group's stronger pipeline deals will bode well for its NOII. Provisions are showing signs of improvement and credit cost is expected to be lower moving into FY18. Asset quality for overseas operations is anticipated to turn better progressively. Post-revision in our earnings estimate, we are now expecting a higher ROE of 9.2% and 10.4% for FY17 and FY18 respectively.

Source: AmInvest Research - 25 May 2017