The CIMB Group saw a 9M19 reported net profit of RM3.7bn, down 17% yoy. Core net profit rose 12% yoy, however, if we exclude a nonrecurring transformation cost of RM258 incurred in 3Q19 and a RM1.1bn asset disposal gain in 2Q18. Overall, the 9M19 results were in line with consensus and our estimates. CIMB’s normalized 9M19 operating income looks decent with a 7.2% yoy growth. Nonetheless, the group has also incurred higher operating expenses for 9M19 (+15.6% yoy), which also include an MSS cost and Forward23 initiativerelated expenses. On a more positive note, we saw a recovery in the group’s NIM, which was up 16bps qoq while loan growth momentum held up, albeit growing at a marginal 1.3% qoq. We maintain our HOLD rating and 12-month TP of RM5.65 (0.96x 2020E P/BV target).

9M19 Core Net Profit Grew at 12% Yoy

CIMB posted a 9M19 net profit of RM3.7bn (-17% yoy) while core net profit of RM3.97bn was up 12% yoy. 3Q19 core net profit declined by 16% qoq due to higher provisions and higher overheads (largely related to Forward 23 initiatives) and lower non-interest income. CIMB’s normalized operating income for 9M19 was underpinned by a fund-based income growth of 5.0% yoy while non-interest income (excluding EI) grew by 13% yoy. NIM for 9M19 remained under pressure, with an aggregare decline of 5bps yoy subsequent to: i) the OPR cut in Malaysia; and ii) lower NIM at CIMB Niaga (which was also affected by rate cuts by Bank Indonesia). CIMB’s net credit cost for 9M19 stood at 38bps (vs. 45bps in 9M18), and this is just shy of management’s guidance of 40-50bps. CIMB’s asset quality remained steady, with the GIL ratio at 3.2% 3Q19 vs. 3.1% in 2Q19.

Potential Review of the DRP as CET 1 Ratio Rises >13%

CIMB’s management may potentially review the dividend reinvestment program (DRP) as the group’s CET 1 ratio has risen above 13% (13.1% as at Sept19). The absence of the DRP could potentially cause a re-rating of the stock due to a higher ROE and less dilution on the EPS.

Maintain HOLD. TP Maintained at RM5.65 (at 0.96x P/BV Multiple)

We maintain our HOLD rating at a TP of RM5.65, based on a target 2020E P/BV of 0.96x (2020E: ROE of 8.8% and cost of equity of 9.0%). At this juncture, re-rating catalysts appear to be lacking (owing to a weaker economic outlook). Our 2020 assumptions include loan growth at 4.2% yoy, NIM at 2.45%, and a credit cost at 40bps. Downside/upside risks: Further/lower NIM pressure

Source: Affin Hwang Research - 25 Nov 2019