Results

• Results in line… CIMB posted 2Q17 earnings of RM1.1bn (+26.3% YoY, -6.6% QoQ), lifting 1H17 net profit to RM2.3bn (+35.3% YoY). The results were in line with expectations, making up 52.8% and 54.5% of HLIB and consensus respectively.

Deviation

• None.

Dividends

• Announced first interim dividend of 13 sen, translating into 50% payout.

Highlights

• QoQ… 2Q17 net profit eased by -6.6% to RM1.1bn, mainly due to lower NOII (-9.4%) to RM1.12bn and a jump in loan loss provision (LLP) by +38.6% to -RM631.5m, partially offset by the +2.6% growth in NII.

• YoY… 2Q17 net profit accelerated by +26.3% to RM1.1bn mainly due to higher NII of RM3.2bn (+15.7%). Nevertheless, associates contribution dipped significantly by -91.9% to only RM2.7m due to the absence of Bank of Yingkuo contribution.

• 1H17… Net profit surged by +35.3% YoY to RM2.28bn mainly underpinned by both NII and NOII. NII rose by +13.1% YoY and NOII widened by +18.8% YoY while LLP was contained at RM1.08bn (-3.2% YoY).

• Loans… Loans increased by +8.3% YoY driven by all key segments namely consumer (+8.5% YoY), commercial (+8.7% YoY) and wholesale (+7.7% YoY). Geographically, higher loan growth was supported by Malaysia (+10% YoY), while Indonesia and Singapore rose by +2.8% YoY and +1.1% YoY respectively.

• Deposits… Deposits expanded by 9.6% YoY. CASA grew at a healthy pace of 10.5% YoY, underpinned by ongoing efforts to strengthen CASA in Singapore (+43.1% YoY), Indonesia (+7% YoY) and Malaysia (+9.6% YoY).

• Asset quality… Absolute GILs rose by +10% YoY (+1% QoQ) bringing GIL to 3.2%. On QoQ, GIL was dragged by Thailand and Singapore which rose +46% YoY and +69% YoY. Loans-loss coverage ratio remained largely unchanged at 77.6%.

• NIM… NIM fell by 1bp QoQ but increased by +8bps YoY to 2.71%, aided by healthy CASA growth. Nevertheless, management believes NIM would narrow in the quarters ahead, as the ability to shed expensive fixed deposits tapers off while loan growth gains momentum in 2H17.

Risks

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

Forecasts

• Unchanged

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 HOLD rating on CIMB but raise our TP to RM6.90 as we roll over valuation to FY18. Our TP is derived from GGM based on i) WACC of 9.0% ii) ROE of 9.8%

Source: Hong Leong Investment Bank Research - 29 Aug 2017