Results

• Below expectation: Reported 3Q16 net profit of RM1.02bn (QoQ: +17.2%; YoY: +27.3%), bringing 9M16 net profit to RM2.71bn (+33.9%). Excluding RM150m sale of PT CIMB Sun Life, 9M16 net profit came in at RM2.6bn (+26.4%yoy), accounting for 68% and 69.8 % of HLIB and street full year net profit forecast, respectively.

Deviation

• Results were hampered by on-going large impairment as well as slower NOII. Barring larger-than-expected provisions in 4Q16, we opine that earnings will catch up to meet our full year estimate.

Dividends

• None, YTD dividend stood at 8 cents.

Highlights

• Against FY16 headline KPIs… Annualised ROE (8.5%) and loan growth (2.4%) missed management guidance of 10% respectively. Whilst other targets; dividend payout, loan loss charge and cost to income remained within guidance.

• 3Q16 YoY: Pre-provision income grew 15.5% owing to surge in both NII and NOII by 2.4% and 10.5% respectively. NOII was backed by sale of AFS and slower forex loss whilst NII was backed by loan expansion.

• 9M16 YoY: Pre-provision income amounted to RM5.1bn (+20%) spurred by higher NII (+5.3%) and lower overhead (- 8.8%). LDR took a breather at 89.8% as compared to 94.9% due to expansion in deposits.

• However, NIM declined by 4bps to 2.61% hampered by higher expensive deposit by 13.7%. Gross impaired loan improved marginally to 3.2%, mainly from Indonesia and Singapore.

• Gross loan expanded 2.4% YoY, lifted mainly by Malaysia operation. Deposits grew 8% YoY led by Malaysia (+10.5% YoY). Overhead expenses continued to rise, lifting 3Q16 and 9M16 CTI to 55.1% and 55.3%. On the flip side, allowance coverage remained at high side of 80% hampered by Thailand and Indonesia operations.

• Operationally, CIMB posted encouraging numbers with key ratios improving to meet management target. However, we remain cautious on its near-term prospects especially on asset quality where the environments in Singapore, Thailand and Indonesia may continue to bog the performance.

Risks

• Further impairment in Singapore and Thailand, especially exposure in the oil & gas sector and not meeting CET1 ratio target.

Forecasts

• Unchanged.

Rating

HOLD ( ↔ )

• While CIMB has charted encouraging recovery in its earnings, we remain cautious on its near-term outlook due to its exposure in weak operating environment in Singapore and Indonesia, especially in the oil & gas sector.

Valuation

• Our Gordon Growth derived TP of RM4.52 is unchanged (ROE of 9.3% and WACC of 10.1%). Maintain HOLD rating on the stock.

Source: Hong Leong Investment Bank Research - 17 Nov 2016