Results

• 2Q16 net profit of RM873m (qoq: +7.3%; yoy: +36.4%) took 1H16 net profit to RM1.69bn (+38.3%). The results came in below expectations, accounting for only 44.2-44.9% of consensus and our full-year forecasts.

Deviation

• Largely due to weaker-than-expected NOII and higher-thanexpected effective tax rate.

Dividends

• Proposed 1st interim DPS of 8 sen under DRS.

Highlights

• Against FY16 headline KPIs… Annualised ROE of 8.1% fell short of management’s guidance of 10% (on lower loan growth of 6.6% vs. management’s guidance of 10%). Other KPI targets, namely dividend payout ratio, credit charge, CET1 and CIR of 41%, 71bps, 10.7% and 55.4% respecti vely, met management’s targets. While keeping its KPI targets unchanged, management highlighted that it would fall short of its loan growth target (6-8%, vs. 10%), hence missing its ROE target by 1%-pt at 9%.

• QoQ… 2Q16 net profit rose by 7.3% to RM873m. the stronger set of results were driven by 2.8% overall loan growth, higher NOII (which in turn was spurred mainly by higher investment and dividend income), which more than offset 7bps NIM compression and higher provisions.

• The recent OPR adjustment will impact CIMB’s NIM by a couple of bps. In any case, management highlighted that the impact of OPR has already been reflected in its NIM guidance of 5-10bps 5-10 bps earlier on.

• Asset quality… GIL ratio increased to 3.16% (from 3.03% in 1Q16), due to an uptick in GIL ratios in Thailand and Singapore operations. Asset quality in Malaysia remained resilient, while Indonesia improved gradually.

Risks

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

Forecasts

• FY16-17 net profit forecasts lowered by 3.9% and 0.6% respectively, to account for lower NOII assumption for FY16- 17 and higher effective tax rate assumption for FY17.

Rating

HOLD

• Positives - Proxy to economic growth and capital markets as well as 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

Post earnings revision, TP was lowered by 4.8% to RM4.52 (based on Gordon Growth with ROE of 9.3% and WACC of 10.1%). Maintain HOLD rating on the stock.

Source: Hong Leong Investment Bank Research - 30 Aug 2016