CIMB Group’s 2019 headline net profit of RM4.56bn declined 18.3% yoy, but the underlying net profit actually rose 7% yoy if we exclude a non-recurring transformation cost of RM258m incurred in 3Q19, a write-off of intangible assets of RM277m and a RM1.1bn asset disposal gain in 2Q18. Results were in line with our and consensus estimates; the Group met mostly its 2019 KPIs except for the cost-toincome ratio, which came in at 53.4% (i.e. above 2018’s 52.6%). Key takeaways from the results include: i) robust loan growth of 6.7% yoy for 2019; ii) NIM declined 4bps yoy to 2.46%; iii) net credit cost at 44bps and iv) CET 1 at 12.9%. CIMB has proposed a final DPS of 12 sen (4Q18: 12 sen). Maintain HOLD with a lower 12-month TP of RM5.25 (0.87x CY20E P/BV target) as we price in the impact of a 50bps OPR cut.

2019 Core Net Profit Up 7.7% Yoy; 4Q19 Affected by One-off Write-off

CIMB posted a 2019 core net profit of RM5.0bn (+7.7% yoy), which is in line with Affin’s and market expectations. Core net profit in 4Q19 was down 6.5% yoy and 17.6% qoq, however, as the positive growth in preprovision operating profit was negated by higher expected-credit-loss (ECL) provisions (from Indonesia). We note that the robust loan growth seen in 4Q19 (up 2.4% qoq and 6.7% yoy) may not necessarily translate into a similar loan growth trajectory in 2020. In fact, we maintain our current loan growth assumptions of 4.2% in 2020 and 4.3% in 2021. CIMB’s asset quality remained steady, with the GIL ratio hovering at 3.1% 4Q19 vs. 3.2% in 3Q19.

OPR Impact Lowers 2020-21E Earnings by 5.6% / 4.4%

We lower our 2020-21E net profit by 5.6% / 4.4% to take into account the impact of a 50bps OPR cut. Nonetheless, as we have also removed the assumption of new dividend shares to be issued in 2020-22E, this has resulted in changes in the 2020-21E EPS of -4.2% and +0.1%.

Maintain HOLD. TP Revised to RM5.25 (from RM5.65)

We maintain our HOLD rating with a lower Target Price of RM5.25, based on 2020E target P/BV of 0.87x (previously 0.96x; 2020E ROE of 8.3% and cost of equity of 8.9%). At this juncture, we see limited rerating catalysts for CIMB (owing to a weaker economic outlook and the Covid-19 outbreak). Our 2020 assumptions include loan growth at 4.2% yoy, NIM at 2.4% and credit cost at 44bps. Downside/upside risks: Further/lower NIM pressure.

Source: Affin Hwang Research - 2 Mar 2020