Results

• Results above expectations… CIMB 3Q17 net profit was stronger at RM1.13bn (+2.7% QoQ, +10.7% YoY), lifting 9M17 net profit to RM3.4bn (+26% YoY) which is slightly above HLIB and consensus at 81.5% and 79% respectively.

Deviation

• Higher-than-expected NOII (+11.2% YoY).

Dividends

• None.

Highlights

• QoQ… 3Q17 net profit of RM1.13bn (+2.7% QoQ) was driven by stronger NOII (+13.6%), but partially offset by weaker NII (-2.2%). Stronger NOII was attributed to the fee and commission income whilst weaker NII was due to persistent pressure in Niaga NIM.

• YoY… Net profit surged by +10.7%, emanated from stronger NII (+9.1%) and lower LLP (-2%). This was, however, negated by rising opex (+3.4%).

• 9M17… Net profit soared by +26% YoY to RM3.4bn, underpinned by higher operating income (NII: +9.1%; NOII: +10.8%) as well as contained LLP (-2.7%) amid a rise in opex (+6.3%).

• Loans… Loans picked up pace to 7% YoY, driven by all key markets except for Thailand (recalibration of loan book). Segmental basis, loan growth was broad-based, i.e. consumer banking (+6.8% YoY), commercial banking (+8.6% YoY) and wholesale banking (+6.7% YoY). Mortgages loan was still healthy at +11.1% YoY.

• Deposits… Deposits rose 2.9% YoY. CASA grew at robust rate of 8.4% YoY, supported by Malaysia (+12.4% YoY) and Singapore (+31.1% YoY). However, slower deposit growth caused LDR to rise to 92% from 89.8% in 9M16.

• Asset quality… Absolute GILs ticked up 8.9% QoQ, pushing GIL to 3.5% amid the rise in residential NPL. LLC ratio fell to 72.4% from 77.6% in 6M17. Management foresees further pressure on O&G accounts in Singapore amid at slower pace. FY17 credit cost guidance is maintained at 60-65bps . CIMB successfully defended NIM from going south, rising by 6bps to 2.67%

• Positive JAWS… Opex rose +6.3% YoY led by personnel cost, but remained well under control. The group’s CTI improved to 52.1 vs. 52.5% in 1H17 against operating income growth of 11.6% YoY.

Risks

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

Forecasts

• Unchanged.

Rating

BUY 

• We believe that CIMB will finally benefit from its T18 strategy that focuses on enhancing CTI, CET and ROE. These initiatives would ensure CIMB to post decent earnings growth. Additionally, we expect MFRS9 is less severe to CIMB as the disposal of Bank of Yingkuo will contribute swiftly to the CET1.

Valuation

• We maintain our TP to RM6.90 . Our TP is derived from GGM based on i) WACC of 9.0% ii) COE of 11.8%. Upgrade to BUY given recent share price retracement.

Source: Hong Leong Investment Bank Research - 29 Nov 2017