INVESTMENT HIGHLIGHTS

• Group Chairman is stepping down by 31 December 2018

• We are neutral on the news and believe it will not have any negative impact to the Group's operations

• The Group's fundamental remains solid

• Maintaining forecast

• Reiterate BUY with unchanged TP of RM7.85

Group Chairman stepping down. The Group announced yesterday that Dato' Sri Nazir Razak will be stepping down as the Group's Chairman and all other positions within the Group by 31 December 2018. Dato’ Sri Nazir has served CIMB for 29 years, since 1989, including as Group CEO for 15 years and as Group Chairman since 2014.

Not to be concerned by the news. We are neutral on the news and do not believe that it will be negative impact to the Group. This is because the Group could be considered "institutionalized" and does not depend on an individual. It had a transition in the position of CEO in 2014 without any detrimental effect.

Operationally remains solid. The Group continues to have solid operations and earnings potential. For example, as at 1HFY18, normalised 1HFY18 net profit grew +3.3%yoy despite net income declining -5.2%yoy as it was moderated lower loan provisions which fell -29.4%yoy to RM746m. Also, since the introduction of its T18 initiative, management have managed to contained OPEX. In 2QFY18, OPEX fell for the second consecutive quarter with -2.5%yoy (vs. -6.8%yoy in 1QFY18). Furthermore, we opine that the Group is on track to achieve its FY18 targets, with possible headwinds in terms of income to be moderated by containment in expenses and credit cost.

Forecasts unchanged. We maintain our FY18 and FY19 forecasts.

Reiterate BUY. In our opinion, the fundamentals of the Group remains solid and the recent announcement will not have any negative impact. Earnings growth will be driven by lower OPEX and credit cost, while traction for its loans growth will help to mitigate the pressure on income. We also believe that this could resolve any overhang issue with the stock and may turn investors' sentiment around. At currenct valuation, we believe that the stock is undervalued given its prospects and have lagged its peers recently. Hence, we reiterate our BUY call with unchanged TP of RM7.85 based on pegging its FY19 BVPS to a PBV of 1.3x. Also, we believe the expected dividend yield of 4.3% will limit any downside risk.

Source: MIDF Research - 25 Sept 2018