CIMB results were within expectations, with core net profit of RM1.15bn (qoq: +8.8%; yoy: -2.2%). Maintain FY18-20 net profit forecasts. However, we lower our TP by 8.9% to RM7.20 as we adjust our beta parameters to reflect current volatile environment. We are positive CIMB is poised to record better earnings as set by T18 strategy. Maintain BUY rating.

Results in line. CIMB adopted new accounting standard of MFRS9 in 1Q18. Excluding RM152m gain from CSI disposal, 1Q18 net profit of RM1.15bn matches expectations, making up 23.7% and 23% ours and consensus full year forecast. No dividend was declared during the quarter.

QoQ. Excluding RM152m disposal gain, 1Q18 net profit increased by 8.8% to RM1.15bn, driven by lower loan-loss provision (-33.7%) and reduction in overhead expenses (-7.2%), but partially offset by lower NOII (-10.1%). Slower loan-loss provision recorded was anchored by consumer and commercial banking.

YoY. 1Q18 core net profit declined by 2.2% to RM1.15bn, as lower overhead expenses (-6.7%) and loan loss provision (-12%) were more than negated by lower operating income from NII (-10.1%) and NOII (-3.5%).The 12% decline in loan loss provision was due to improvement in the consumer and commercial banking whilst wholesale banking was impacted by the absence lumpy write-back 1Q17. Despite higher NIM (arising from rate hike in Malaysia), NII declined by 3.5% (mainly due to loan base shrinkage in Indonesia), and NOII was weighed by loss of trading securities instruments.

Loans. Loan growth was flat at 0.5% YoY and 0.6% QoQ, as the strong growth in Malaysia (+7% YoY) derailed by weaker loan in Indonesia, whilst Singapore and Thailand were flat at 0.7%YoY and 0.4%YoY respectively. Working capital experienced a heavy decline by -5% YoY for FY18, CIMB is targeting 6% loan growth target.

Deposits. Deposit growth was flattish with only 0.6% YoY contributed by Thailand, while deposits in Malaysia surged strongly by 8.9% YoY. Liquidity in Malaysia and Indonesia were improved in 1Q18 that led LDR reduced to 89.7% from 91.7% in 1Q17.

Asset quality. GIL ratio declined to 3.24% vs. 3.39% end Dec-17, resulted from improvement in Indonesia and Singapore and we observed some deterioration in Thailand GIL. Malaysia GIL further declined to 1.83% from 1.88% in end Dec-17. The implementation of MFRS benefiting CIMB’s loan-loss-coverage as it stood at 105.3%.

Forecast. No change to our forecast.

Maintain BUY, TP: RM7.20. We revised our TP on CIMB by 8.9% to RM7.20 as we updated our parameters (updated beta) to reflect the current volatile environment. Notwithstanding, we remain positive on CIMB’s prospects as it is on target to achieve guidance that ensures further earnings recovery and ROE expansion. We maintain our BUY rating with lower TP of RM7.20 based on (i) COE of 12% and (ii) WACC of 9.1%.

Source: Hong Leong Investment Bank Research - 31 May 2018