Period

4Q15/12M15

Actual vs. Expectations

CIMB’s 12M15 PAT of RM2,849m (-8% YoY) was in line with expectations, accounting for 95%/88% of our/consensus estimates. Higher loan loss provisions brought on the underperformance.

Dividends

No dividend was declared as expected.

Key Results Highlights

12M15 vs. 12M14, YoY

PAT was dragged by higher loan loss provisions of RM2,167m (+42%) and the higher opex of RM9,249m (+11.5%) attributed to the group’s restructuring and MSS conducted in 2015.

Top line growth was commendable coming in at 9.6% higher attributed to improvement from: (i) Net Interest Income (NII) at +8%, (ii) Islamic Banking Income at +7% and Non-Interest Income at +14% driven by net gain arising from derivative financial instruments (contributing 55% of NOII).

Cost-Income Ratio (CIR) was almost flattish at 60% vs. industry’s CIR of 45.5%).

At the PBT level, Malaysia is still the biggest contributor, accounting for 79% (12M14: 72%) followed by Indonesia at 8% (12M14: 19%) and Thailand at 3% (12M14: 5%).

NIM fell by 14bps to 2.6% as competition for deposits intensified (vs. our expectations of a 22bps compression).

Loans and deposits grew by 6.6% and 6.9% (excluding forex fluctuations), respectively, vs. our forecast of 10% for both. The marginal difference saw LDR staying flattish at 94%. CASA fell by 70bps to 34%.

Malaysia is still the biggest contributor in loans at 53% followed by Indonesia (19%) and Thailand (8%) with Malaysia the driver at 9.1% growth.

Deposits growth was driven by Singapore (+9%), and Malaysia (+6%) and Malaysia is still the contributor in deposits at 58% followed by Indonesia at 17% and Singapore at 13%.

Asset quality was stable with GIL flattish at 3.0% with the bulk of the impairment coming from the residential property (16%), construction 15% and working capital (38%). Loan Loss Coverage rose 2ppst to 85% but below the industry’s 96%.

Credit cost was up by 58bps to 0.80% vs. our expectation (we had assumed it to be at 75bps).

CET1 and CAR fell by 60bpts and 140bpts to 9.8% and 12.5%, respectively, due to increase in its Risk Weighted Assets (RWA) but still above the regulatory requirements of 7% and 10.5%, respectively.

After deducting the proposed dividends the Group’s CET1, Tier 1 and CAR were at 10.9%, 11.8% and 15.4% well above regulatory levels.

ROE was at 8% (vs. our forecast of 8% and management’s target of 11%).

4Q15 vs.3Q15, QoQ

The bottomline grew 3% as total income grew by 5% but mitigated by higher allowances for impairment at 10%.

Total income improved driven by NOII growth if 13%.

NIM was flat at 2.8% fell by 67bpts to 1.98%

As opex declined (-2.1%) more than total income growth, CIR fell 4ppts to 54%.

Loans growth was flat with deposits at 2.1%, with CASA flattish at 34%.

LDR fell 2ppt as deposits outpaced loan growth.

Asset quality improved with GIL falling 37bps to 3.0% but credit costs rose 5bps to 0.8%.

Outlook

With the uncertain and challenging environment, management is cautious going forward but comfortable in its overall portfolio with commodity-related exposure making up only 10% of its gross loans. With the exception of Indonesia, management is confident of its asset quality

Management gave a few guidance for FY16: (i) ROE to come in at around 10.0% (Kenanga: 7.6% from 7.7%), (ii) Total loans growth of 10% (Kenanga: 9.0% from 10.0%), (iii) Credit charge ratio of 60-70bpts (Kenanga: 69bps from 73bps); and (iii) CIR below 53% (Kenanga: unchanged at 58%).

As for FY17, we estimated (i) ROE to improve 8%, (ii) loans growth of 9% (deposits at 10%);(iii) credit charge to improve slightly at 0.63% and CIR to improve at 54%.

Change to Forecasts

All told, considering the above mentioned assumptions, we toned down our FY16E core profit slightly by 2% to RM3,190m and introduced our FY17E core earnings.

Rating

Maintained UNDER PERFORM

Valuation

With the cut in earnings, we arrive at a new GGM-TP of RM4.04 (previously RM4.06). This is based on 0.81x FY16E P/B (unchanged); we utilised: (i) COE of 8.0% (from 8.9% previously), (ii) FY16 ROE of 7.6% (previously FY16E ROE of 7.8%), and (iii) terminal growth of 3% (unchanged).

The lower P/B multiple is to reflect slower growth and weaker ROE generation moving forward.

Risks

Steeper margin squeeze from tighter lending rules and stronger-than-expected competition.

Slower-than-expected loans and deposits growth.

Higher-than-expected rise in credit charge as result of a potential up-cycle in non-performing loan (NPL).

Further slowdown in capital market activities.

Unfavourable regulatory changes.

Adverse currency fluctuations.

Source: Kenanga Research - 26 Feb 2016