CIMB’s 1H18 core net profit of RM2.19bn (-4.3%) accounted for 42.4% and 46.4% of consensus and our full-year forecasts. We consider the results within our expectation as we are anticipating 2H18 to come in stronger, underpinned by the anticipated pick up in retail loans and NOII. Maintain earnings forecasts, TP of RM5.80 and HOLD recommendation.

Results in line. Excluding disposal gains of RM1.09bn (RM163m from disposal of CSI and RM938m from disposal of CPAM and CPIAM), CIMB’s core net profit of RM2.19bn (-4.3% YoY) accounted for 46.4%% and 42.4% of our and consensus full year forecasts. We consider the results within our expectation as we are anticipating 2H18 to come in stronger, underpinned by the anticipated pick up in retail loans and NOII.

Dividend. Proposed 1st interim DPS of 13 sen.

QoQ. 2Q18 core net profit weakened by 8.8% to RM1.04bn, mainly attributable to lower NOII (-21.1%) but partly mitigated by a 0.9% increase in NII. We note that the sharp decline in NOII was due mainly to the deconsolidation of CIMB Securities from CIMB Group, and higher forex losses.

YoY. 2Q18 core net profit declined by 5.4% to RM1.04bn, due to lower NII (arising from 21bps NIM erosion) and NOII (arising from forex losses and deconsolidation of CIMB Securities), but partly mitigated by lower overhead expenses (-7.8%) and loan loss allowance (-49.7%).

YTD. 1H18 core net profit declined by 4.3% to RM2.19bn mainly on the back of lower NIM (arising from a 19bps decline in NIM) and NOII (arising from lower capital markets in Malaysia), but partly mitigated by lower operating expenses (-7.2%) and loan-loss-allowance (-14.3%, arising mainly from lower allowance at commercial banking operations, particularly in Indonesia).

Loan on path for recovery. Loan grew 3.4% YoY, contributed by all key markets (in local currency). Malaysia loan grew at faster pace by 9.4% YoY, followed by Singapore and Thailand at 11% and 6.3% YoY respectively. Target of 6% in FY18 will be driven mostly by consumer segment, while corporate loan will accelerate faster in 2H18 by leveraging on the deals that was deferred in the 2Q18.

Weaker deposits. While CASA held up well at 36.6% (vs.35.8% in 2Q17), deposits declined by 0.9% YoY, caused by fixed deposit which declined by 5.3% YoY.

Asset quality. GIL ratio for the quarter improved to 3.19% from 3.21% in 2Q17 on the back of improvement in Thailand GIL. Annualised credit cost for the 1H18 narrowed by 21bps YoY to 45bps in 1H17 caused by the compression experienced in Niaga.

Forecast. No Change to Our Forecast.

Maintain HOLD, TP: RM5.80. Maintain HOLD recommendation with unchanged TP of RM5.80 based on GGM valuations of (i) COE of 13.5% and (ii) WACC of 10.1%. Post-GE14, we believe CIMB loan growth target of 6% is achievable given the pickup in retail loans, which will mitigate the slowdown in business loans.

Source: Hong Leong Investment Bank Research - 30 Aug 2018