We attended CIMB pre-results meeting. Management shares its optimism in meeting FY18 KPIs, fuelled by higher loan growth in domestic market, absence of large impairment and further decline in operating expenses. Digital efforts are in place in across all key markets to smoothen its business flow which aims to improve business process flow and resulting cost-to-income ratio declining to 45%. Various M&A announced in FY17 will be concluded this year and CIMB will incur various one-off gains that will lift its capital. Our forecast is unchanged pending 1Q18 results on 30 May. We maintain our BUY rating with unchanged GGM based TP of RM7.90 (COE: 10%, WACC: 8.7%).

We met with CIMB management for its usual pre-results announcement meeting. Below are the key takeaways:

On Track to Meet FY18 KPIs. Management shares its optimism in meeting its FY18 KPIs. This will be fuelled by higher loan growth, absence of large impairment and further decline in operating expenses. These initiatives will likely result to FY18 ROE of 10.5%-11%.

Loan Growth on Track. CIMB guided FY18 loan growth of 6%, which will be driven mainly by Malaysia, whilst weaknesses are still seen in Indonesia and Thailand. For Malaysia, CIMB is targeting a loan growth of 6-7%, which will be driven largely by retail segment (in particularly, the residential property sub-segment). On the other hand, Niaga’s loan growth will likely remain subdued, mainly on the back of loan portfolio recalibration.

NOII. Management shared that NOII will witness fluctuations in 1Q18 (on qoq basis) due to soft fixed income market, but partly mitigated by strong broking-related income (which benefited from active Bursa Malaysia trading volume).

Works on Digitization. Ongoing efforts to digitise operations across all key markets (which is aimed at improving its business process flow efficiency) is underway, and this will result in cost-to-income ratio declining to 45% (in 2-3 years’ time) from 51.8% (in FY17).

One-off Gains. CIMB is due to recognise several one-off gains in FY18 from M&A activities that were carried out in FY17. These include (i) RM150m in 1Q18 from a 50% stake disposal of CIMB Securities International to China Galaxy Securities, (ii) RM313m in disposal gains from a 20% stake sale in CIMB Principal to Principal Financial Group in 2Q18, and (iii) RM637m in marked to market revaluation gains on its existing 40% stake in CIMB Principal.

Forecast. No change to our forecast, pending release of 1Q18 results on 30 May 2018.

Maintain BUY, TP: RM7.90. We are optimistic that CIMB is poised to post another round of improved performance in FY18, benefitting from the tail end of its T18 strategy that ensures further earnings recovery and ROE expansion. We maintain our BUY rating with unchanged GGM based TP of RM7.90 based on (i) COE of 10% and (ii) WACC of 8.7%.

Source: Hong Leong Investment Bank Research - 4 May 2018