News

• CIMB announced yesterday that it has received approval from the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) to operate a branch in the Philippines.

Comment

• Pursued Philippines since 2016… CIMB has been pursuing the Philippine banking license since 2016. We are, however, not surprised with the delay in obtaining necessary approval. Recall in early of this year, CIMB had guided to start operate in Philippine in 4Q17. The first retail branch is now expected to be fully operational by the fourth quarter of 2018.

• Completes Asean footprint… With the opening of Philippine branch, CIMB completed its presence in Asean region (10 countries). CIMB currently operates more than 1,000 branches in 17 cities with Indonesia being the largest earning contributor ex-Malaysia, contributing 20% to CIMB loans book.

• Philippine an emerging market… Philippines with GDP size of more than US$305bn is one of the fastest growing economies in Asean with a 6.9% growth in 2016, providing vast opportunity for CIMB to explore. CIMB is the second bank from Malaysia managed to obtain approval from BSP. To note, Maybank owns 85 branches in the Philippines.

• Neutral on the announcement…. Overall, we are neutral on the announcement as earnings accretion from the Philippines is expected to be minimal in the near term judging from the initial investment CIMB would incur (including opening of branches). However, we view the move positively as the Philippines offers vast opportunity for CIMB to grow its loans book. We believe CIMB will pursue the strategy on digital banking and collaboration with local partners in various products and services, mirroring the similar strategy CIMB deployed for its Vietnam operation.

• CIMB share price… CIMB share price has weakened 4.3% since early November, further dampened by confidence issue to the loss of back up tape containing customer data. However, we believe CIMB’s fundamental remains intact and is poised to report 3Q17 results within our expectation.

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 - 17 Nov 2017