CIMB Group CIMB MK Sector: Banking

Transcription

1 Group s outlook stabilizing We believe that the CIMB Group is on track for an earnings recovery subsequent to being bogged down with hefty provision costs from Indonesia as well as a restructuring and mutual separation scheme amounting to RM652m in Maintain BUY on CIMB with our PT at RM5.00. CIMB Niaga s 1Q16 net profit rebounded, in-line with expectation CIMB Niaga reported a 1Q16 normalized net profit of Rp269bn (RM272m), more than triple yoy, while on a qoq basis, normalized net profit improved by 13%. The annualized earnings contribution to the CIMB Group (in-line with expectations) has been more meaningful, estimated at 27% based on our 2016E net profit forecast of RM4bn to the Group. It is still too early for CIMB Niaga s earnings to reflect significant cost benefit from the MSS exercise last year. In addition, CIMB Niaga s 1Q16 credit cost remains high at 285bps vs. 332bps in 1Q15 and 317bps in 4Q15 though may improve to 200bps by end Group s outlook in 2016 stabilizing; recent initiatives bearing fruits Subsequent to a discussion with management, we are more assured that the group s outlook in 2016 is stabilizing and gradually improving, based on the following:- i) hefty provisions coming from Indonesia (back in 2015) will start easing; ii) some positive impact of cost-savings from the Mutual Separation Scheme (MSS) exercise last year will be felt from Feb-Mar 2016 onwards; and iii) The Risk-Weighted Assets (RWA) optimization and capital enhancement initiatives are showing results s targets 30-50bps CET1 improvement, lower credit cost CIMB s management is targeting at least another 30-50bps improvement in the CET1 capital ratio within the next 12 months via organic capital growth, directing capital to more efficient use, and migration of capital (sale of non-core assets) as well as through reduction in non-performing loans (NPLs) and data refinement. The Group NPLs are expected to stabilize, with no signs of stress in the Malaysian consumer book while over in Indonesia, NPLs appear to be well-contained and no other contagion effects are expected. FY16-18E forecasts remain unchanged; Maintain BUY, PT RM5.00 We reiterate our BUY rating on CIMB Group, with our Price Target unchanged at RM5.00 (based on a 1.0x 2016 P/BV multiple, with ROE assumption at 9.4% and cost of equity at 9.4%). Earnings & Valuation Summary FYE 31 Dec E 2017E 2018E Total income (RMm) 14, , , , ,415.3 PPOP (RMm) 5, , , , ,851.6 Pretax profit (RMm) 4, , , , ,196.6 Net profit (RMm) 3, , , , ,622.1 EPS (sen) Core net profit (RMm) 3, , , , ,622.1 Core EPS (sen) Core EPS growth (%) (30.6) Core PER (x) ROE (%) BVPS (RM) PBV (x) Net DPS (sen) Dividend Yield (%) Affin/Consensus (x) Source: Company, Affin Hwang estimates Company Update CIMB Group CIMB MK Sector: Banking 28 Apr 2016 BUY (maintain) Upside 7.1% Price Target: RM5.00 Previous Target: RM5.00 (RM) Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Price Performance 1M 3M 12M Absolute -2.1% +12.5% -22.7% Rel to KLCI +0.4% +12.2% -14.8% Stock Data Issued shares (m) 8,728.9 Mkt cap (RMm)/(US$m) 40,763.8/10,420.2 Avg daily vol - 6mth (m) wk range (RM) Est free float 42.9% BV per share (RM) 4.81 P/BV (x) 0.97 Net cash/ (debt) (RMm) (4Q15) n.a. ROE (2016F) 8.0% Derivatives Nil Shariah Compliant No Key Shareholders Khazanah 29.0% EPF 14.2% Mitsubishi UFJ 4.5% Source: Affin Hwang, Bloomberg Tan Ei Leen (603) eileen.tan@affinhwang.com Page 1 of 6

2 CIMB Niaga s 1Q16 net profit rebounded, in-line with expectation CIMB Niaga reported a 1Q16 normalized net profit of Rp269bn (RM272m), an improvement of more than 2x yoy, while on a qoq basis, normalized net profit improved by 13% (excluding MSS cost of Rp100bn in 4Q15). The earnings contribution to the CIMB Group (on an annualized basis) has been more meaningful, estimated at 27% based on our 2016E net profit forecast of RM3,982.4m to the Group, which is in-line with our estimates. At this juncture, it is still too early for CIMB Niaga s earnings to reflect significant cost benefit from the MSS exercise last year, though operating expenses were 1.4% lower yoy. In addition, 1Q16 provisions dipped 7.3% yoy, and 3.5% qoq, but credit cost remains high at 285bps vs. 332bps in 1Q15 and 317bps in 4Q15. Meanwhile, 1Q16 operating income expanded by 2.2% qoq and 4.4% yoy underpinned by a larger boost from the non-interest income (of which saw robust contribution from the Treasury business). During the quarter, NIM improved qoq and yoy to 5.35% (despite the rate cut) on the back of improved CASA ratio from 43.4% (1Q15) and 46.8% (4Q15) to 52.05% (1Q16). On the other hand, outstanding loans declined by 3.1% yoy due to an anaemic market apart from a more measured approach adopted by management. Fig 1: CIMB Niaga 1Q16 financial results FYE Dec (Rp bn) 1Q16 1Q15 Y-y 4Q15 Q-q (%) (%) Net Interest Income 2, , ,862.0 (0.9) Non-Interest Income Operating Income 3, , , Operating Expenses (1,822.0) (1,848.0) (1.4) (2,365.0) (23.0) Pre-provision Profit 1, , , Provisions (1,341.0) (1,446.0) (7.3) (1,389.0) (3.5) Pre-Tax Profit Taxation (121.0) (25.0) (30.0) Net Profit Normalized Net Profit EPS (Rp) Normalized EPS Key Financial Ratios: Profitability Mar-16 Mar-15 Dec-15 NIMs (%) Fee income ratio (%) Cost to income ratio (%) Annualised ROE (%) Balance Sheet Gross loans (Rp tr) Customer deposits (Rp tr) Net LDR (%) Capital Core capital ratio (%) Total RWCR (%) Asset Quality Impairment ratio (%) Impaired LLC (%) Credit Cost (bps) Source: Affin Hwang, Company data Page 2 of 6

3 We anticipate the outlook in 2H16 to improve for CIMB Niaga, driven by: i) a pick up in loan growth especially on the consumer mortgages and credit cards as sentiment improves; ii) lower credit cost, averaging at 200bps for 2016; and iii) further cost-benefit arising from the restructuring last year. Group s outlook in 2016 stabilizing; recent initiatives bearing fruits Subsequent to a discussion with management, we are more assured that the group s outlook in 2016 is stabilizing and gradually improving, albeit will be slow. We are more or less confident that the hefty provisions coming from Indonesia (back in 2015) will start easing, and meanwhile, some positive impact of cost-savings from the Mutual Separation Scheme (MSS) exercise implemented last year will be kicking-in from Feb-Mar 2016 onwards. The Risk-Weighted Assets (RWA) optimization initiatives are showing results as well given management s close commitment to bring up the capital adequacy ratios. In sum, CIMB Group s 1Q16 financial numbers are expected to outperform 4Q15 s core net profit of RM850.6m and 1Q15 s core net profit of RM782m in the absence of hefty provisions and lower overheads. The CIMB Group is targeting to release its results on the 26 th of May16. Capital ratios targeted to improve another 30-50bps For 2016, CIMB s management is targeting to further raise the CET1 capital ratio by another 30-50bps in the next 12 months via growth in shareholders funds (organic capital growth), directing capital to more efficient use (sale of AFS securities which are basically tying down capital and are not high-quality liquid assets (HQLA), reduction in the use of swaps) and migration of capital (sale of non-core assets, which is the lowhanging fruit but may initially result in one-off improvement of about 30bps to CET1 ratio). Meanwhile, management could also optimize the riskweighted assets (RWA) through reduction in NPLs and data refinement (cleaning up stale assets which are mostly holdings of Malaysian bonds and loans and getting the securities rated). Other non-core assets potentially up for sale could be Touch N Go, Tune Money and Bank of Yingkou. The recent disposal of PT CIMB Sun-Life is expected to enhance the Group s capital ratios by 4-5bps. As at 31 Dec 2015, CIMB Group s CET1 ratio stood at 10.3%, which was a 100bps improvement from 9.3% as at Sept 2015 (largely due to data refinement and restructuring of the AFS book). Non-performing loans are stabilizing In 3Q-4Q 2015, management had expected that the consumer book in Malaysia may see some deterioration in early 1H2016 primarily due to increase in credit defaults of the lower-income group. However, thus far there are no signs of stress (no upticks in NPL ratio and impairments). Meanwhile, in Indonesia, the growth in NPLs appears to be well-contained though remains high. Management did not see new NPLs emerging due to contagion effects to other key economic sectors; retail consumer and SME loan books are generally stable except for some deterioration in the autoloan book. Page 3 of 6

4 For 2016, we have an assumption of 63.5bps in terms of credit cost (2015: 73bps) while gradually improving to 48bps in (in anticipation of credit writebacks and recoveries). Operating expenses post-mss Management expects 2016 s cost-to-income ratio (CIR) to ease to approximately 53% (from 60% in 2015, including MSS costs; excluding MSS cost at 53.5%), with a target to bring the ratio down to below 50% (inline with the T18 s targets) subsequent to the MSS exercise last year coupled with other rationalization activities, i.e. closure of some of the group s branches (>300 micro-finance branches in Indonesia and retail branch networks in Thailand). Otherwise, on a business-as-usual basis, management is expecting a normalized 3% growth p.a. in total operating expenses. Loan growth target and NIM outlook Management maintains its 2016 s loan growth target of 10% yoy, with Malaysia s targeted growth at 8-9%, Indonesia s at 7-8%, while Thailand and Singapore will be making up for the rest at low to mid double-digit growth. Given the still weak loan growth numbers in Jan-Feb 2016, CIMB s net-interest-income growth could possibly be subdued attributable to NIM compression simultaneously. For 2016, management is expecting a potential 5-10bps NIM compression underpinned by Malaysia: 5-10bps compression (structural decline in loan yields and due to change in deposit composition); Indonesia: 20bps compression (dipping below 5%, with most compression from the asset side); Thailand and Singapore : mostly flat yoy (optimizing the liquidity coverage ratio, use of swaps). FY16-18E forecasts remain unchanged; Maintain BUY, PT RM5.00 At this juncture, we keep our FY16E/17E/18E earnings forecasts (RM3.99bn/ RM4.3bn/ RM4.6bn) unchanged. We remain upbeat on management s initiatives and effort to bring down operational costs (expectation of RM m cost-saving p.a.), improve RWA and optimize capital ratios as well as to maintain the group s asset quality (a potential improvement in credit costs given absence of hefty provisions). At present, we reiterate our BUY rating on CIMB Group, with our Price Target unchanged at RM5.00 (based on a 1.0x 2016 P/BV multiple, with ROE assumption at 9.4% and cost of equity at 9.4%). Downside risks asset quality deterioration, competitive pressure Downside risks: political instability, weaker sentiment, competitive pressure, NIM compression. Page 4 of 6

5 CIMB Group FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm) E 2017E 2018E FYE 31 Dec (RMm) E 2017E 2018E Interest income 16, , , , ,781.1 Return and efficiency Interest expense (7,403.5) (8,761.9) (9,535.6) (10,308.5) (11,148.7) ROE (%) 9.2% 7.3% 9.4% 9.4% 9.5% Net interest income 8, , , , ,632.3 ROA (%) 0.8% 0.7% 0.8% 0.8% 0.8% Islamic banking income 1, , , , ,616.6 Average lending yield 4.43% 4.30% 4.21% 4.09% 4.13% Total non-interest income 3, , , , ,166.4 Cost of funds 2.14% 2.22% 2.23% 2.20% 2.20% Total income 14, , , , ,415.3 NIM post-islamic banking (%) 2.81% 2.71% 2.43% 2.31% 2.32% Overhead expenses (8,292.0) (9,249.0) (7,643.6) (8,078.5) (8,563.7) Int income/total income (%) 72.0% 70.8% 72.9% 73.3% 74.6% Pre-Prov. Op. Profit 5, , , , ,851.6 Non-interest/total inome (%) 28.0% 29.2% 27.1% 26.7% 25.4% Impaired loan allowances (1,700.9) (1,943.5) (1,984.1) (1,621.6) (1,742.0) Cost-to-income (%) 56.0% 60.1% 51.4% 52.6% 52.2% Associates contributions Pretax profit 4, , , , ,196.6 Tax (1,101.9) (1,071.0) (1,334.5) (1,437.8) (1,549.2) Balance sheet Minority interest (67.7) (19.1) (21.0) (23.1) (25.4) Loan growth (%) 7.5% 12.5% 9.9% 7.3% 8.1% Net profit 3, , , , ,622.1 Gross Impaired loan ratio (%) 3.1% 3.4% 3.4% 3.4% 3.4% Gross impaired loan ratio (%) 1.2% 1.6% 1.9% 2.0% 2.1% Balance Sheet Statement Loan loss reserves (%) 82.7% 90.3% 96.2% 98.2% 101.7% FYE 31 Dec (RMm) E 2017E 2018E Credit Cost (bps) Cash and short-term fund 33, , , , ,450.5 Deposit growth (%) 7.2% 12.5% 10.8% 10.1% 10.3% Deposits with FIs 4, , , , ,829.5 LD ratio (%) 93.8% 91.5% 90.3% 87.8% 85.9% Securities repurchased 4, , , , ,008.5 LD ratio including interbank (%) 84.2% 87.3% 84.5% 83.1% 82.0% Securities held-for-trading 23, , , , ,680.3 Securities available-for-sale 32, , , , ,613.6 Securites held to maturity 18, , , , ,759.2 Capital adequacy (Group) Derivative Financial Insturment 7, , , , ,708.8 CET1 (%) 10.1% 10.4% 10.7% 11.1% 11.4% Total current assets 123, , , , ,050.4 Tier-1 (%) 11.5% 11.8% 12.1% 12.5% 12.8% Total Capital Ratio (%) 15.1% 15.4% 15.7% 16.1% 16.4% Net loan and advances 258, , , , ,200.9 Fixed assets 1, , , , ,529.5 Statutory reserves with BNM 6, , , , ,826.4 Investment statistics Other assets 13, , , , ,591.0 PER (X) Intangible assets 1, , , , ,820.6 PBT growth rate (%) -26.9% 0.2% 24.6% 7.7% 7.7% Goodwill 7, , , , ,297.5 Net earnings growth rate (%) -31.6% -8.3% 39.8% 7.7% 7.7% Total assets 414, , , , ,316.3 EPS (sen) EPS growth rate (%) -37.5% -10.3% 37.7% 5.9% 5.7% Customer deposits 282, , , , ,236.1 Deposits from other FIs 32, , , , ,364.8 BV/share (RM) Repurchase securities 5, , , , ,527.5 P/BV Bills and acceptances 10, , , , ,468.8 Dividend payout (%) 40.4% 18.0% 30.0% 30.0% 30.0% Other funding liabilities 33, , , , ,016.5 NDPS (sen) Other liabilities 11, , , , ,890.9 Net yield (%) 3.2% 3.0% 2.9% 3.1% 3.3% Total liabilities 375, , , , ,504.5 Minority interests , , ,051.4 Preference shares Loan Breakdown - By Economic Purpose Shareholders' Funds 37, , , , ,560.5 FYE 31 Dec (RMm) E 2017E 2018E Securities 19,708 27,168 27,315 29,228 31,273 Quarterly Profit & Loss 414, (461,561.64) ######### ######### Transport vehicles 21,338 23,297 24,085 25,290 26,554 FYE 31 Dec (RMm) 4Q14 1Q15 2Q15 3Q15 4Q15 Residential properties 66,248 75,495 82,280 88,040 96,844 Interest income 4, , , , ,779.6 Non-residential properties 20,637 25,171 28,305 30,286 32,406 Interest expense (1,980.0) (2,086.9) (2,116.6) (2,239.8) (2,318.6) Fixed assets 15,761 15,920 18,194 19,104 20,059 Net interest income 2, , , , ,461.0 Personal use 8,748 10,608 10,813 11,137 11,471 Islamic banking income Credit card 7,576 8,843 8,785 9,224 9,685 Total non-interest income 1, , , , ,163.6 Consumer durables Total income 3, , , , ,041.6 Construction 8,199 9,581 10,082 11,091 12,200 Overhead expenses (2,239.2) (2,339.8) (2,439.8) (2,260.5) (2,211.4) Mergers and acquisitions 5,289 3,617 4,757 4,757 4,757 Operating profit 1, , , , ,830.2 Working capital 74,273 79,418 91, , ,694 Loan loss provisioning (919.2) (534.3) (529.0) (523.7) (579.2) Other purpose 16,272 18,596 21,015 22,066 23,169 Provn for other receivables (9.0) (7.1) (28.6) Islamic loans sold to Cagamas Impairment loss from securities (138.9) (1.7) (10.1) 1.7 (109.5) Total gross loans 264, , , , ,224 Associates contribution Pretax profit , ,132.2 Breakdown of loans (%) Taxation (159.6) (233.2) (231.9) (256.3) (296.6) Corporate (%) 60.5% 60.3% 61.5% 61.9% 61.9% Minority interests (25.0) (10.2) (12.0) (14.3) (9.9) Retail (%) 39.5% 39.7% 38.5% 38.1% 38.1% Net profit Source: Company, Affin Hwang estimates Page 5 of 6

6 Disclaimer Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12-month period HOLD Total return is expected to be between -5% and +10% over a 12-month period SELL Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) ( the Company ) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the Company s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. Under no circumstances shall the Company, its associates and/or any person related to it be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Any opinions or estimates in this report are that of the Company, as of this date and subject to change without prior notice. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company and/or any of its directors and/or employees may have an interest in the securities mentioned therein. The Company may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences and hence an independent evaluation is essential. Investors are advised to independently evaluate particular investments and strategies and to seek independent financial, legal and other advice on the information and/or opinion contained in this report before investing or participating in any of the securities or investment strategies or transactions discussed in this report. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Company s research, or any portion thereof may not be reprinted, sold or redistributed without the consent of the Company. The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, Kuala Lumpur. affin.research@affinhwang.com Tel : Fax : Page 6 of 6