Highlights

• Below are the key takeaways from our small group meeting with CIMB’s management yesterday.

• Stockbroking partnership with CGI. Management highlighted that the set-up of stockbroking partnership with China Galaxy International (CGI) is mainly aimed at reducing the group’s overall cost base. While the partnership (if it materializes) allows CIMB to gain access to the Chinese capital markets, this is not its main priority, and management has no intention to do so (at least in the near term).

• Impact of OPR cut on NIM. The 25bps OPR cut in Jul-16 will result in a 3bps NIM compression in 2H16, before it gradually normalizes (when deposits are gradually being re priced).

• Loan growth in Malaysia. Management hinted that loan growth in Malaysia may slow further (to mid-single digit growth from 7.7% yoy achieved in 2Q16), on the back of low approvals.

• Overall asset quality to remain robust. While asset quality in Malaysia remains robust, provisions may experience a slight uptick (partly due to seasonal factor). For Indonesia, provisions are gradually improving, and management sees credit cost approaching 150bps in 2017 (from 282bps in 2Q16). As for Thailand, provisions will likely increase further.

Catalysts

• Gaining more traction in cost rationalization or T18 initiatives, better than expected non-interest income growth, turning into an APAC universal bank and more active capital management.

Risks

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

Forecasts

• Unchanged, pending results scheduled in end-May.

Rating

HOLD

• We believe interests on the stock will reignite when re-rating catalyst emerges (among others, improved investment sentiment, improved performance from Indonesian operations and/or return of foreign interests), given its compelling valuations.

Valuation

• Target price maintained at RM4.52 (based on Gordon Growth with ROE of 9.3% and WACC of 10.1%).

Source: Hong Leong Investment Bank Research - 20 Oct 2016