Investment Highlights

• We downgrade our call on CIMB Group Holdings (CIMB) from BUY to HOLD with a lower fair value of RM6.30/share (previously: RM6.80/share). Our projected FY19 ROE has been reduced to 10.1% from 10.8%, leading to a drop in P/BV multiple to 1.1x. We trim our FY18/19/20 net profit by 6.3%/6.7%/9.3% after reducing our NOII estimates further and lowering our loan growth assumptions.

• The group reported a core net profit of RM1.04bil (- 9.6%QoQ) after excluding a one-off gain of RM928mil from the partial disposal of CIMB-Principal Asset Management (CPAM) and CIMB-Principal Islamic Asset Management (CPIAM) and an additional gain of RM11mil from the sale of a 50.0% stake in CIMB Securities International (CSI). 1HFY18 core earnings of RM2.19bil, excluding one-off gains totalling RM1.09bil from partial disposals of CSI, CPAM, CPIAM, were below expectations, making up 43.7% of our and 44.6% of consensus estimates. ROE for 1HFY18 based on core earnings was 9.1% vs. our projection of 10.2%.

• The group's gross loans accelerated to a growth of 3.3%YoY from 0.5%YoY in the preceding quarter. Excluding FX impact, the group’s loan growth was 7.0%YoY.

• Group NIM declined by 9bps QoQ to 2.48% in 2QFY18 largely due to the lower margins in Indonesia.

• NOII was weaker in 2QFY18 due to slower capital market activities in Malaysia. Treasury and markets business has picked up pace in July and Aug 2018. However, it remains challenging to play catch-up in 2HFY18 for the weaker NOII in 1HFY18 as the market remains volatile.

• The group's impaired loans in 2QFY18 remained stable with a marginal increase of 0.5%QoQ to RM10.6bil. Overall GIL ratio declined to 3.17% in 2QFY18 from 3.22% in 1QFY18. 1HFY18 credit cost of 0.45% improved from 1HFY17’s 0.66%, and remained lower than our estimate of 0.60% for FY18.

• A first interim dividend of 13 sen/share has been proposed, resulting in a payout of 51.6%.

• As at the end of 2QFY18, the group’s CET1 ratio remained healthy at 11.9%, and is on track to meet its T18 target of 12.0%. The partial disposals of the group’s stakes in CSI as well as CPAM and CPIAM have provided a lift of 14bps and 15bps to the group’s CET1 ratio respectively.

Source: AmInvest Research - 30 Aug 2018