Investment Highlights

• We maintain our HOLD call on CIMB Group Holdings (CIMB), with a higher revised fair value of RM7.10/share (previously: RM7.05/share). Our fair value is based on a FY18F ROE of 10.5%, leading to P/BV of 1.3x. We have tweaked our FY18/19 net profit upwards by 1.4%/3.8% after fine-tuning our assumptions for cost-to-income ratio and credit cost.

• 4QFY17 core net profit declined by 9.5%QoQ to RM1.03bil with a modest growth in total income, offset by higher overhead expenses and higher allowance for other impairment losses. We understand that the RM65.2mil of impairment losses in 4QFY17 was for its bonds in Singapore related to the oil & gas sector.

• 12MFY17 core earnings after stripping out gains from disposal of subsidiary/associate came in at RM4.43bil (+29.9%YoY). The improved cumulative earnings were supported by higher NII and NOII. Cumulative earnings were within expectations, making up 103.8% of our and 98.4% of consensus estimates. ROE for 12MFY17 was 9.5% (base on core profit) against our projection of 9.2%.

• The group's gross loans decelerated further to 0.2%YoY compared to 7.0%YoY in 3QFY17. On a QoQ basis, consumer and commercial banking loan growth was flat while that wholesale banking contracted marginally. Excluding FX impact, gross loan growth was 3.1%YoY lower than our expectation of 6.0%YoY for FY17.

• Group NIM was flat at 2.63% in FY17 with active liability management.

• With an OPEX growth of 5.6%YoY, the group continued to sustain a positive JAW (4.9% in 12MFY17 based on core total income).

• The group's impaired loans in 4QFY17 decreased 2.5%QoQ to RM10.9bil. This was due to the decline in impaired loans in Malaysia and Indonesia partially offset by a marginal increase in Thailand.

• The group's overall GIL ratio improved slightly to 3.4% in 4QFY17 from 3.5% in 3QFY17.

• 12MFY17 credit cost was 0.69% (12MFY16: 0.74%) slightly higher than our projection of 0.65%.

• Group CET1 ratio improved 20bps QoQ to 12.2% and met its T18 target of 12.0%.

• A second interim dividend of 12 sen/share has been proposed in 4QFY17 bringing the total dividends to 25 sen/share (payout 51%) close to our estimate of 23.6 sen/share.

Source: AmInvest Research - 1 Mar 2018