Results

• In line with estimates… CIMB delivered strong 1Q17 net profit of RM1.18bn (+38% QoQ, +45% YoY) which is broadly in line with expectations, with, making up 28.2% and 27.3% of HLIB and consensus respectively.

Deviation

• None.

Dividends

• None.

Highlights

• YoY… 1Q17 earnings of RM1.18bn (+45% YoY ) was attributed to higher contribution from both net interest income and non-interest income (NOII) by +10.6% YoY and 37.2% YoY. Stronger earnings was also aided by the dip in loan-loss-provision (LLP) to RM455.5m (-11.7% YoY) anchored by lower IA amounting of RM167m (-37.4% YoY).

• QoQ… Net profit soared by 45% underpinned by NOII (+10.3% QoQ) and a dip in LLP by -41% QoQ due to lower IA by 64.5%.

• Loans… Flat QoQ but surge on YoY basis by 12% supported by growth across all segments, namely consumer (+10.7% YoY), commercial (+11.6% YoY) and wholesale (+14.5% YoY). By region, growth was driven solely by Malaysia (+11.8% YoY) whilst the rest remained weak.

• Deposits… Improved strongly by 5% QoQ and 11% YoY, lifted by higher demand and saving deposits by +9% YoY and 18% YoY respectively. Fixed deposits fell for second consecutive quarter by -0.4% QoQ. The above helped push 1Q17 NIM higher by 9bps to 2.72% as CASA ratio increased to 36%. Despite this, management maintains its view of further NIM compression moving forward due to competition on loan pricing.

• Asset quality… NPL fell by -3.3% QoQ, lowering GIL to 3.17%. However, there was a significant pickup in Singapore GIL by 28% QoQ. Credit cost slowed to 13bps (52bps annualized). Despite the improvement, management maintains its view of 60-70bps credit cost in FY17.

• Expenses… Total expenses accelerated by +7%YoY and +3%QoQ. CTI declined to 52.6% as expansion in income outpaced that of expenses.

Risks

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

Forecasts

• Given the higher writeback, we fine-tune our forecasts by imputing lower credit cost of 70bps from 75bps. Consequently, our net profit forecast for FY17 is raised by 3%. FY18 and FY19 forecasts are maintained.

Rating

HOLD ( ↔ )

• We strongly feel that FY17 will be a year of further tweaking of business operation with priority of cost and capital optimization. Management’s guidance for a sustainable 40%-60% payout should entice the shareholders moving forward.

Valuation

• We maintain our Hold call but raise our TP to RM5.93 (from RM5.60) to reflect the earnings adjustment by applying a higher P/B of 1.05x (from 1.0x). Our TP is derived from GGM model based on i) WACC of 9.2% ii) ROE of 9.4% (from 9.1%).

Source: Hong Leong Investment Bank Research - 25 May 2017