CIMB Group saw 6M19 net profit of RM2.7bn (-17.8% yoy; including asset disposal gains of RM252m in 6M19 vs. RM1.1bn in 6M18). However, core net profit improved by 14.5% yoy. The 6M19 results were in line with market and our estimates. The 2Q19 results had some nonrecurring items such as an expected credit loss write-back and downward adjustment to net interest income, which are MFRS 9 driven. With these adjustments coupled with the 25bps OPR cut, CIMB’s 6M19 NIM saw a 7bps compression to 2.46% while its 6M19 net credit cost averaged 35bps (6M18: 45bps). We maintain our HOLD call and TP of RM5.65 (0.96x 2020E P/BV). An interim DPS of 14 sen was proposed.

6M19 Core Net Profit Grew 14.5% Yoy

CIMB posted a 6M19 net profit of RM2.7bn (-17.8% yoy) while core net profit was up 14.5% yoy. On a qoq basis, net profit grew by 26.6% led by better non-interest income (disposal gain, investment income, forex profits) and lower expected credit losses. After the one-off MFRS 9 adjustments (on net interest income), 2Q19 fund-based income was marginally lower by 1.3% qoq. Thus, NIM for 6M19 fell by 7bps yoy to 2.46% and 11bps qoq to 2.34%. This was also partly impacted by the immediate impact of the OPR cut on variable loan rates. Funding cost pressure (+13.2% yoy for 6M19) was also another dampening factor as deposit growth was robust at 10% yoy vs. loan growth of 6.9% yoy. CIMB’s 6M19 CIR remains high at 53.2%, vs. 51.3% for 6M18, partially driven by its Forward23-related expenses.

2H19 Stance Remains Cautious, Supported by Steady Domestic Economy

We anticipate a moderation in business activities in Malaysia and the regional economies (due to impact of the global trade slowdown) in 2H19. On a positive note, CIMB’s asset quality has remained steady, with the GIL ratio at 3.1% in 2Q19 (uptick of 0.1ppts vs. 1Q19). Management maintains its 2019’s credit cost expectation at 40-50bps against 35bps in 6M19. The impact of another 25bps OPR cut would have a full-year impact of negative 4-5bps on NIM and RM100-200m on NII, on our estimates.

Maintain HOLD Call and TP of RM5.65 (at 0.96x P/BV Multiple)

We maintain our HOLD call and 12-month TP of RM5.65, based on 2020E P/BV of 0.96x (2020E: ROE of 8.8% and cost of equity of 9.0%). Our 2020 assumptions include loan growth at 4.2% yoy, NIM at 2.40%, and credit costs at 40bps. Downside/upside risks: Further/lower NIM pressure.

Source: Affin Hwang Research - 30 Aug 2019