Comment

• CIMB held a meeting with analysts ahead of the close period for its 3Q17 results. Below are the key takeaways from the meeting:

• 3Q17 results likely inline… We expect CIMB’s 3Q17 results and KPIs (i.e. loan growth and NIM) to likely track management guidance. NOII has been robust benefiting from the execution of its heathy pipeline.

• Mixed loan growth performance… CIMB painted a rather mixed loan growth performance across region. Malaysia loan growth is on course to support CIMB 7% loan growth in FY17. In Indonesia, the lack of large infrastructure project led to a modest growth, whilst in Thailand, it was impacted by recalibration of loan portfolio where CIMB moved away from SME and credit card loan.

• Less intense deposit competition… The deferment of NSFR implementation to CY2019 is a boon to the banking industry despite most of the banks have met the 100% requirement. Besides, the modest banking system loan growth and the rise of longer-term funding have also contributed to the less intense deposit competition. To note, CIMB (ex-Malaysia) has already complied with the NSFR requirement of 100%. Given this, CIMB is likely to post a better NIM in FY17 as compared to earlier guidance of a 5- 10bps compression. Niaga’s NIM has shown improvement in recent quarters.

• Stable credit cost… Niaga credit cost remained elevated around 200bps whilst CIMB is maintaining credit cost guidance of 60-65bps in FY17. Higher write-backs especially in Malaysia will play a role to achieve the guidance. There was no new stress on its O&G account especially in Singapore.

• MFRS9 guidance… Day 1 impact to the group’s CET1 is maintained at 50bps (CIMB guided 12% CET1), whilst credit cost guidance is estimated to be slightly higher than FY17 credit cost of 60-65bps. Nevertheless, credit cost for the initial years of MFRS9 implementation would be muddled due to the impact on longer-term loans which are required to earmark upfront provision.

Risks

• Further impairment in Singapore and Thailand, especially exposure in O&G sector; not meeting CET1 ratio target.

Forecasts

• Unchanged.

Rating

HOLD ( ↔ )

• Despite the uncertainty of its ex-Malaysia operation, we believe that home market Malaysia will provide necessary support cushioning other weaknesses. Indonesia is on course to report further recovery whilst Thailand outlook remains bleak. Management’s guidance for a sustainable 40%-60% payout should entice the shareholders moving forward.

Valuation

• We maintain our TP at RM6.90 , derived from GGM based on i) WACC of 9.0% ii) ROE of 9.8%. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 20 Oct 2017