Investment Highlights

• We maintain our BUY call on CIMB Group Holdings (CIMB), with an unchanged fair value of RM6.60/share. Our fair value is based on FY18F ROE of 10.5% leading to a P/BV of 1.2x. Post-3QFY17 results, we have finetuned our net profit forecast for FY17/18/19 by 0.2%/2.0%/3.2% respectively after factoring in higher estimates for Islamic banking income and credit cost.

• 3QFY17 core net earnings grew modestly by 2.7%QoQ to RM1.13bil, underpinned by higher total income and lower provisions for loan impairment.

• 9MFY17 net profit surged26.0%YoY to RM3.42bil. This was driven by higher non-interest income (NOII) and net interest income (NII) on the back of higher NIM and decent loan growth. Cumulative earnings were within expectations, making up 80.0% of our and 76.6% of consensus estimates respectively. Annualised ROE for 9MFY17 was 9.7%.

• Gross loan growth continued to moderate to 7.0%YoY compared to 8.3%YoY in the preceding quarter (excluding FX translation impact: 6.4%YoY) after a strong growth in 1QFY17. The was due to the slowdown of loans across all divisions (consumer, commercial and wholesale banking). Expansion in loan book continued to be driven largely by Malaysia while loans in Singapore picked up pace. Loan growth in Thailand was flat while that in Indonesia was modest.

• 3QFY17 NIM declined 11bps QoQ to 2.60%, due to weaker margins in Indonesia. NIM in Malaysia has been holding up. For 9FY17, NIM was still higher by 6bps YoY to 2.67% supported by better liquidity management in Thailand, Indonesia and Singapore.

• The group reported a positive JAW of 5.3%. The CI ratio in 9MFY17 of 52.1%, was close to our estimate of 52.5% for FY17.

• On a quarterly basis, the group's impaired loan balance rose by 8.9% in 3QFY17, contributed by higher impaired loans in Thailand, Singapore and Indonesia. By segment, the increase came from higher impairment of mortgage, personal loans, loans for purchase of fixed assets and working capital loans. This has resulted in the group's overall GIL ratio rising to 3.5% from 3.2% in the preceding quarter.

• 3QFY17 credit cost improved slightly to 0.73% from 0.78% in 2QFY17, but remained elevated. Credit cost was 0.67% for 9MFY17 (9MFY16: 0.72%), higher than our estimate of 0.60% for FY17.

• Group CET1 ratio improved 10bps QoQ to 12.0% as at the end of 3QFY17. It continued to be on track to meet its FY17 target of >11.5%.

• No dividend has been proposed in 3QFY17.

Source: AmInvest Research - 29 Nov 2017