CIMB’s 2Q17 net profit of RM1.1bn was flat qoq and up 26.3% yoy, while PPOP rose 21.4% yoy. 1H17 net profit was in-line with our and consensus estimates. Group credit quality in 2Q17 was intact as GIL stood at 3.2% (flat qoq), though in the absence of non-recurring recoveries, 2Q17 credit cost edged up to 78bps qoq. Annualized ROE, cost-to-income ratio and CET 1 ratio (11.9%) continued to strengthen from last year. A DPS of 13 sen (+62.5% yoy) was proposed vs. 8 sen in 2Q16. Maintain BUY, PT unchanged at RM7.50 (at 1.4x CY18 P/BV).

1H17 Headline Net Profit +35.3% Yoy; In-line With Expectations

1H17 net profit (+35.3% yoy) was in-line with our and consensus estimates, supported by robust fund-based income growth as group NIM was higher (+8bps yoy to 2.71%) driven by group loan growth of 8.3% yoy and re-pricing of the Malaysian mortgage portfolio. Amongst the business divisions, Wholesale Banking was the outperformer in 1H17 with PBT of RM1.24bn, up 77% yoy, driven by a combination of increased capital market activities, stronger loan growth and lower provisions. 1H17 PBT for the key overseas units rebounded strongly (Indonesia + 88.8% yoy; Thailand +80% yoy; Singapore +62.1% yoy) due to lower provisions, while Malaysia (contributing 66% to group PBT) was up 13.4% yoy.

Credit Quality Remains Intact; CIR on Track With KPI

CIMB’s GIL ratio remained flat at 3.2% qoq. In the absence of nonrecurring recoveries, 2Q17 credit cost edged up to 78bps qoq (propped up by some provisions on O&G accounts in Singapore and in the Malaysian consumer books due to the Raya season) but was within management’s guidance. Management reiterated its official credit cost guidance of 60- 65bps for 2017E. Meanwhile, CIMB’s 1H17 cost-to-income ratio (CIR) of 52.5% is on track to meet its 2017 target KPI of < 53%.

Maintain BUY, PT Unchanged at RM7.50 (1.4x CY18 Target P/BV)

Reiterate BUY on CIMB, With An Unchanged CY18 Price Target of RM7.50, based on a target P/BV of 1.4x (underlying assumptions: 2018E ROE 9.6% and 8.3% cost of equity). Our assumptions for 2017-19E: i) fund-based income growth of 5-6% p.a. with loan growth of 6.3-7%; ii) steady NIM at 2.63-2.66%; iii) CIR at 51%. We have also raised our dividend forecasts based on a payout ratio of 51% from 45-48% previously. Downside risks – deterioration in asset quality, NIM pressure, more volatility in provisions arising from the adoption of the MFRS 9.

Source: Affin Hwang Research - 29 Aug 2017