Investment Highlights

• We maintain our HOLD call on CIMB Group Holdings (CIMB), with an unchanged fair value of RM6.70/share. Our fair value is based on FY18F ROE of 10.4% leading to P/BV of 1.2x. No change to our earnings forecast.

• 2QFY17 core net earnings declined 6.7%QoQ to RM1.1bil, underpinned by a lower total income and higher provisions for loan impairment.

• 1HFY17 net profit rose 35.3%YoY to RM2.28bil. This was driven by higher non-interest income (NOII) and net interest income (NII) on the back of a rise in NIM and loan growth. Cumulative earnings were within expectations, making up 53.4% of our and 50.7% of consensus FY17F net profit. Annualised ROE for 1HFY17 was 9.9%.

• Momentum for loans turned slower in 2QFY17. Gross loan growth decelerated to 8.3%YoY (excluding FX translation impact: 5.5%YoY) after a robust growth of 12.1%YoY in 1QFY17. The slowdown was contributed by the slowdown of loans across all divisions (consumer, commercial and wholesale banking). Expansion in loan book was driven largely by Malaysia. This was followed by a modest growth in Indonesia while loan growth in both Thailand and Singapore were flat.

• 2QFY17 NIM inched lower by 1bps QoQ to 2.71%. For 1HFY17, NIM improved by 8bps to 2.71% against 2.63% in 1HFY16 supported by better liquidity management in Thailand, Indonesia and Singapore.

• Positive JAW of 6.1% was reported in 1HFY17 with a growth in total income that outpaced its OPEX. CI ratio in 1HFY17 was 52.5%, in line with our estimate. This was contributed by a decline in CI ratios of consumer and commercial banking, but partially offset by that of wholesale banking.

• On a quarterly basis, the group's impaired loan balance was marginally higher by 0.6% in 2QFY17. Nevertheless, the group's overall GIL ratio remained steady at 3.2%.

• 2QFY17 credit cost rose to 0.79% from 0.52% in 1QFY17. On a QoQ basis, provisions for loan impairment increased by 49.3% or circa RM208mil. We understand that this was due to an absence of provision write back in 1QFY17 of RM120mil as well as upticks in provisions for Malaysia and Indonesia as a result of the festive season (RM80mil). The group had also made some provisions (not significantly large) for its loans in Singapore related to the oil & gas sector. This led to a credit cost of 0.66% for 1HFY17 (1HFY16: 0.71%) which was higher than our estimate of 0.60% for FY17.

• Group CET1 ratio improved 40bps QoQ to 11.9% as at the end of 1HFY17. It continued to be on track to meet its FY17 target of >11.5%.

• An interim dividend of 13 sen/share has been declared for 1HFY17 (payout ratio: 51.6%), higher than 1HFY16's 12 sen/share.

Source: AmInvest Research - 29 Aug 2017