1Q16 core earnings of RM814 were in line, accounting for 25%/21% of our/consensus estimates. No dividends announced as expected. Earnings estimate for the Group are unchanged but TP raised to RM4.71 as we roll valuation base to FY17E and upgrade our call to MARKET PERFORM.

CIMB’s 1Q16 CNP was in line and registered a 40% jump in net profit growth attributed to lower opex and allowances for impairments.

3M16 vs. 3M15, YoY

• Top line growth moderated at +1.2% (3M15: +4.2%) due to improvement coming from: (i) Net Interest Income (NII) at +8.8% (3M15: +6.0%), (ii) Islamic Banking Income at +19.2% (3M15: -0.3%) but offset by Non- Interest Income (NOII) at -19.5% (3M15: +2.3%).
• Cost-Income Ratio (CIR) was down by 6ppts to 57.4% vs. the industry’s CIR average of 50.9%).
• At the PBT level, Malaysia is still the biggest contributor, accounting for 74% (3M15: 80%) followed by Indonesia at 10% (3M15: 4%) and Thailand at 7% (3M15: 5%).
• NIM improved by 5bps to 2.7% as cost of funds retreated by 5bps (vs. our expectations of a 6bps compression).
• Loans and deposits grew by 7.1% and 6.8% vs. our forecast of 9% and 10%, respectively (excluding forex fluctuations loans/deposits growth at +5.6%/+5.0%). The marginal difference saw LDR almost flattish at 91.4%. CASA fell by 130bps to 35.7%.
• Malaysia is still the biggest contributor in loans at 55% followed by Indonesia (18%) and Thailand (8%) with Malaysia the driver with a 8.4% growth.
• Deposits growth was driven by Singapore (+17.8%), and Malaysia (+3.5%) and Malaysia is still the contributor in deposits at 60% followed by Indonesia at 16% and Singapore at 12%.
• Asset quality improved, falling by 14bps to 3.0% with the bulk of the impairment coming from the residential property at 16.2% (3M15: 18.1%), construction at 15.7% (3M15: 15.6%) and working capital at 36.7% (3M15: 30.0%). Loan Loss Coverage ascended slightly by 60bps to 84.8% and below the industry’s 94.3%.
• Credit cost improved by 19bps to 0.64% vs. our expectation of 9bps compression to 0.69%.
• The Group’s CET1 and CAR improved by 120bps and 190bps to 10.9% and 15.4%, well above regulatory levels of 7% and 10.5%, respectively.
• ROE was at 8.1% (vs. our forecast of 7.7% and management’s target of 10%).

1Q16 vs. 4Q15, QoQ

• The bottomline declined by 1.4% (4Q15: +2.7%) as total income fell by 7.9% (4Q15: +2.4%) lower opex (-3.4%) and lower allowances for impairments at 19.8%.
• NIM compressed by 10bps to 2.7% (4Q15: compressed by 1bps).
• As opex declined (-3.4%) less than total income growth, CIR surged by 270bps to 57.4%. _ Loans/deposits fell at -2.8%/-0.2% and CASA improved by 130bps to 35.7%. As decline in loans outpaced deposits decline, LDR fell by 240 bps to 91.4%.
• Asset quality stable with GIL almost flattish at 3.0% and credit costs fell 17bps to 0.6%.

Source: Kenanga Research - 27 May 2016