CIMB’s 1H16 core net profit improved by 33% and was within our expectations at 52% but below consensus at 45%. No change in our earnings forecast as economy conditions in the ASEAN region remain challenging going forward. TP maintained but downgrade to MARKET PERFORM call.
1H16 core net profit (CNP) of RM1,687m (+38.3% YoY) was within expectations, accounting for 52%/45% of our/consensus estimates brought about by falling opex at 11.5% and declining allowances for impairments at 1.1%. An 8.0 sen DPS was declared (within our expectations of a full-year DPS of 15.3 sen). Loans growth was slower than expected at +6.5% YoY with NIM compression less than 5bps (6M15: -22bps). Deposit taking was higher than loan at +7.2% with domestic deposits growing +7.7% YoY. On a quarterly basis, CNP improved +7.3% QoQ attributed to rebound in top line but dragged by higher provisioning (credit costs up by 18bps) with NIMs falling by 18bps. Both loans and deposits growth were disappointing at +2.1% and -0.3%, respectively.
Outlook still challenging. With external economic environment still challenging, management is still cautious in its outlook for the rest of FY16. Management is hopeful on better recovery from Indonesia being a beneficiary of the infrastructure spending and lower interest rates. Performance from both Malaysia and Singapore is likely subdued and in Thailand the focus will be on asset quality. As for overall asset quality, both Malaysia and Indonesia were flat YoY, with Singapore coming off. There were no new R&R seen for 1H16. O&G exposure in only 3% of total gross loans of which only 18% (of the 3% exposure) is impaired. Risk management, asset quality and cost management initiatives are still the core focus areas going forward.
Despite the challenging environment, management is keeping to its FY16 guidance; (i) ROE of c.10%, (ii) 10% loans growth (might be lower to 9% due to the challenging economy), (iii) NIMs to further compress by 5-10bps, and (iv) credit costs of between 60bps to 70bps. We made no changes in our assumptions for FY16E and maintained our FY17E assumptions with: (i) ROE to come in at around 7.7%/8.3% for FY16/FY17, (ii) loans growth of 9% for both FY16/FY17, (iii) deposits growth around 10% for both years, (iv) credit costs of around 69bps/65bps for FY16/FY17, (iv) CIR at around 58%/56%, and NIMs compression by 6bps for FY16 but higher by 1bps to 2.61 for FY17..
Forecasts earnings maintained. With the unchanged assumptions, our forecast earnings for FY16E/FY17E are maintained at 3,261m/RM3,786m.
No change in TP but rating downgrade to MP. Our TP is maintained at RM4.87. This based on a 0.9x FY17E P/B where we utilised: (i) COE of 8.8%, (ii) FY17 ROE of 8.2%, and (iii) terminal growth of 2.5%. At current valuation, we see limited upside, thus downgrade to MARKET PERFORM.
Risks to our call are: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans and deposits growth, (iii) Worse-thanexpected deterioration in asset quality, (iv) Further slowdown in capital market activities, and (v) Adverse currency fluctuations
Source: Kenanga Research - 30 Aug 2016
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