Results

• CIMB reported 3QFY15 net profit of Rp89bn (qoq: -5%; yoy: -74.1%), bringing 9MFY15 net profit to Rp265bn, account ing for only 7.8% of consensus full-year estimates. Excluding one-off MSS cost of Rp471bn, 9MFY15 net profit would have been higher at Rp618bn.

Deviation

• It has forewarned 3Q provision will remained elevated (albeit slightly lower sequentially) which will impact earnings. Moreover, soft economy also impacted earnings.

Highlights

• NIM has improved to 5.19% in 3Q15 (from 5.08% in the previous quarter). Moving into FY16, management expects NIM to remain under pressure (at around 5% level), given its expectation of a lower lending yield, plans to increase its deposit growth (through increasing promotion acti vities) as well as the slow economic activities there.

• Gross NPL improved to 3.17% in 3Q15 (from 4.28% in 2Q15), due to sale of assets (consisting mainly coal-related NPLs) into Indonesian bad bank. Management highlighted that there are signs of deterioration in the asset (as witnessed in the increase in special mention portion to 8.26% in 3Q15 from 6.1% in the previous quarter), particularly in the consumer and commercial segments.

• CIR (excluding one-off Rp471bn MSS cost) improved to 48.9% in 3Q15 from 56.1% in 2Q15, as personnel cost savings (arising from the MSS exercise) has started kicking in since 3Q15 (1.5 months impact). While management highlighted that the exercise will result in an annual personnel cost savings of Rp350bn (upon completion in 1Q16), CIR will hover around 50% level, as lower personnel cost will be partly offset by increased depreciation arising from its earlier investments in infrastructure.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income when there is a slowdown in capital markets.

Forecasts

• Unchanged, pendi ng CIMB Group’s 3QFY15 results scheduled on 25 Nov.

Rating

HOLD

Positives

• - Proxy to economic growth and capital markets as well as growing regional universal bank platform, new core banking system (1Platform) and new T18 initiatives.

Negatives

• Impact on non-interest income when capital markets soften, impact of asset quality deterioration in Indonesia and legacy high cost structure.

Valuation

• Target price maintained at RM5.52 (based on Gordon Growth with ROE of 11% and WACC of 10.4%) for now, pending CIMB Group’s results scheduled on 25 Nov.

Source: Hong Leong Investment Bank Research - 2 Nov 2015