KEY INVESTMENT HIGHLIGHTS

• NIM compression manageable despite policy cuts expected in Malaysia, Indonesia and Thailand

• Deposits competition in Malaysia stable and not as intense as before

• Indonesia seems fine and expected to have some pickup in loans growth

• Weighing options on digital bank

• No change to FY19 and FY20 earnings forecast

• Maintain BUY with unchanged TP of RM6.30

Key takeaways. We met with the management yesterday. Below are our key takeaways from the discussion:

• Deposits competition in Malaysia and Thailand has been stable. However, it continues to be intense in Indonesia.

• Outlook in Indonesia appears to be fine, with expectation of a pickup in loans growth in FY20.

• The Group is approximately half way on the investment it had planned for its Forward23 initiative.

• Several options being mull for the upcoming digital bank license in Malaysia including the option of not applying for the license.

NIM compression will be manageable despite rate cuts. NIM in 9MFY19 was lower -5bp yoy to 2.47% due to policy rate cuts in Malaysia and Indonesia in FY19. However, we believe that NIM compression will be manageable at a likelihood of low single digit. This is despite the management expecting one policy rate cut in Malaysia, Indonesia and Thailand. Our expectation in premised upon the fact the policy cuts will be likely have positive impact to CIMB Niaga and CIMB Thai’s NIM. Meanwhile, the expected OPR cut in Malaysia will lilely have a negative impact of 3-4bp to NIM. Nevertheless, we believe that the impact to another OPR cut will likely be muted.

Deposits competition stable and will not weigh NIM. Another factor that will provide some support to NIM will be the stable deposit competition especially in Malaysia. We observed the previous intensifying of fixed deposit competition in the fourth quarter was relatively absent in FY19. This could be due to the fact that banks were holding back in taking deposits in view of another OPR cut. In addition, we understand that much of the expensive deposits were released in 3QFY19. As such, we will not be surprised if the Group’s NIM recovered from the OPR cut in just one quarter. Recall, NIM had improved +4bp qoq and +16bp yoy in 3QFY19, mainly contributed by the recovery in Malaysia. We are expecting an OPR cut in 1QFY20.

Source: MIDF Research - 21 Jan 2020