01 March 2018 4QFY17 Results Review CIMB Group Holdings Bhd Stellar ending INVESTMENT HIGHLIGHTS Exceeded our expectations, with strong NII and NOII growth, while cost contained NIM dipped in 3QFY17 due to compression in Indonesia but overall improved. Robust gross loans growth Slight uptick in GIL ratio but overall asset quality stable due to lower impaired loans in Malaysia Strong CASA expansion Capital seemingly well buffered for MFRS 9 Maintaining forecast Maintain BUY with revised TP of RM7.80 (from RM7.17) as we peg FY18 BVPS to 1.4x PBV Slightly above our expectations. The Group ended the year with another strong quarter with 4QFY17 net profit growing +24.1%yoy. As a result, FY17 earnings rose +25.6%yoy. This exceeded our expectations as FY17 net profit came in at 105.7% of our full year estimates. Meanwhile, it was 98.7% of consensus FY17 expectation. Solid income growth...operating income grew +9.7%yoy due to robust NII expansion and strong NOII growth, especially in 4QFY17. NII rose +8.4%yoy due to loans growth and NIM expansion in 9MFY17. However, these moderated in 4QFY17. Nevertheless, we are not concerned by the moderation as mortgages, enterprise and commercial loans grew strongly. NOII grew +12.8%yoy supported by reversal in forex gains and higher commissions. These increased to RM1.53b and RM1.25b from RM0.64b and RM0.97b respectively. Maintain BUY Revised Target Price (TP): RM7.80 (from RM7.17) RETURN STATS Price (28 February 2018) Target Price RM7.19 RM7.80 Expected Share Price Return +8.5% Expected Dividend Yield +4.9% Expected Total Return +13.4% STOCK INFO KLCI 1,856.20 Bursa / Bloomberg Board / Sector Syariah Compliant 1023 / CIMB MK Main / Finance No Issued shares (mil) 9,225.5 Market cap. (RM m) 66,331.7 Price over NA 1.4x 52-wk price Range RM5.01 RM7.39 Beta (against KLCI) 1.68 3-mth Avg Daily Vol 17.66m 3-mth Avg Daily Value Major Shareholders RM118.07m Khazanah 27.27% and lower provisions were contributor to earnings growth. Credit cost improved by -5bps yoy on higher recoveries which grew +43.8%yoy to RM516.6m. Possibly, this was mainly from wholesale corporate banking as provisions fell -51.8%yoy to RM505m Loans growth moderated due to repayments. Gross loans was relatively flat at +0.2%yoy to RM324.2b. We understand that the moderation in gross loans growth (from +7.0%yoy as at 3QFY17) was due to large repayments. Indeed, wholesale banking gross loans (which contributed 34.5% of total loans book) contracted -5.9%yoy to RM110.7b. However, as mentioned, mortgages, enterprise and commercial banking saw robust gross loans growth at +8.1%, +12.8%yoy and +3.1%yoy to RM86.7b, RM8.8b and RM43.0b respectively. Meanwhile, excluding forex flectuations, group gross loans grew +3.1%yoy. EPF 14.13% KWAP 6.49% Some banking abbreviations used in this report: CA = Collective Impairment Allowance CI = Cost to Income CET1 = Common Equity Tier 1 GIL = Gross Impaired Loan LD = Loan-Deposit NII = Net Interest Income NOII = Non-interest income NIM = Net Interest margin CASA = Current and Savings Accounts COF = Cost of Funds IB = Investment Banking LLC = Loan Loss Coverage PPOP = Pre-Provisioning Operating Profit MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures
Impaired loans manageable. GIL ratio went up +10bps yoy to 3.39%. This was due to higher impaired loans in Thailand and Singapore which saw an increase of +20.2%yoy to RM2.56b and +62.1%yoy to RM710.6m. We believe that agricultural and oil & gas sector respectively were the main culprit. However, Malaysia and Indoesia's asset quality improved with impaired loans coming in lower at -4.3%yoy to RM3.56b and -6.6%yoy to RM3.88b. In addition, GIL ratio as at 4QFY17 was +10bps qoq better. Uptrend in deposits growth. Deposits expanded +5.5%yoy to RM357.0b, led by Malaysia where it grew +12.4%yoy. CASA rose +3.4%yoy to RM124.9b, again led by Malaysia and also Singapore. CASA in these two markets recorded growth of +8.7%yoy to RM68.6b and +16.3%yoy to RM16.4b respectively. CAS Increased impact from MFRS 9 expected by capital seems to be ready. We opine that capital is sufficiently buffered for the implementation of MFRS 9. The Group s CET1 ratio had been on a rising trend and stood at 12.2% as at 4QFY17, from 12.2% as at 3QFY17. Management guided that it expects a 70-80bps downward impact to CET1, higher than previous guidance of 50bps, due to the new Bank Negara guidelines to regulatory reserve. FY18 targets achievable. For FY18, management is guiding; (1) ROE of 10.5%, (2) Dividend payout ratio of 40-60%, (3) total loans growth of +6.0%yoy, (4) credit cost of 0.55-0.60%, (5) CET1 ratio of 12.0% and (6) CI of 50.0%. We believe that the above target is achievable given the stellar performance from the Group thus far. Loans growth may seem to be on the high-side but given that the Group were focusing on improving asset quality in Thailand and Indonesia, it is poise for a recovery. Meanwhile, we expect loans growth to continue to be robust in Malaysia. FORECAST We make no change to our forecast. VALUATION AND RECOMMENDATION The Group ended the year on a solid note. We were pleased to see income growth to be strong driver for the earnings growth. We believe that this trend will continue, especially as loans growth is expected to accelerate this year. In addition, there will one-off gains from divestment of its stake in several subsidiaries and, expansion in Vietnam and Phillipines to look forward to. Therefore, we reiterate our BUY call with a revised TP of RM7.80 (from 7.17). Our TP is based on pegging its FY18 BVPS to a higher PBV of 1.4x (from 1.3x) which is its 5-year historical average. We believe that a PB multiple at its historical average is fair given that its earnings have recovered and the reduction of risk due to the implementation of MFRS 9. 2
INVESTMENT STATISTICS OF CIMB GROUP FYE Dec FY16 FY17 FY18F FY19F Net interest income (RM m) 9,826 10,459 10,980 11,415 Islamic banking income (RM m) 1,704 2,132 1,951 2,068 Non-interest income (RM m) 4,386 5,036 5,851 6,144 Total income (RM m) 16,065 17,626 18,782 19,627 Pretax profit (RM m) 4,884 6,110 7,366 7,434 Net profit 3,564 4,475 5,731 5,785 Core Net profit (RM m) 3,564 4,475 4,984 5,785 Core EPS (sen) 41 50 61 58 PER (x) 17.5 14.5 11.8 12.5 Net Dividend (sen) 20 25 35 33 Net Dividend Yield (%) 2.8 3.5 4.9 4.5 Book value per share (sen) 5.11 5.23 5.51 5.82 PBV (x) 1.4 1.4 1.3 1.2 ROE (%) 8.3 9.2 11.4 10.2 DAILY PRICE CHART Imran Yassin Yusof imran.yassin@midf.com.my 03-2173 8395 3
Table 1: Comparison of quarterly results FYE Dec (RM m) Quarterly results (normalised) 4QFY17 3QFY17 4QFY16 (+/- %) Qoq (+/- %) NII 2,994 3,049 3,016-0.7% -1.8% NOII 1,521 1,374 1,297 17.3% 10.7% Net income 4,515 4,423 4,313 4.7% 2.1% OPEX (2,307) (2,267) (2,230) 3.5% 1.8% PPOP 2,208 2,156 2,083 6.0% 2.4% Write back/(provision) for loan losses (676) (595) (887) -23.8% 13.6% Pre-tax profit 1,535 1,528 1,212 26.7% 0.5% Net profit 1,060 1,132 854 24.1% -6.4% EPS (sen) 11.6 12.5 9.7 19.6% -7.2% Table 2: Comparison of financial ratios by quarters based on reported financials Financial Ratios (%) 4QFY17 3QFY17 4QFY16 (+/-ppts) Qoq (+/-ppts) CET-1 12.2 12.0 11.3 0.9 0.2 Tier 1 Capital 13.6 13.5 12.9 0.7 0.1 Total Capital 16.5 16.6 16.3 0.2-0.1 GIL ratio 3.4 3.5 3.3 0.1-0.1 Loan Loss Coverage 70.5 72.4 79.8-9.3-1.9 Credit charge-off 0.71 0.73 0.93-0.22-0.02 Cost to income (CI) 51.1 51.3 51.7-0.6-0.2 LD ratio 90.8 92.0 95.6-4.8-1.2 NIM 2.53 2.60 2.69-0.16-0.07 ROE 8.8 9.5 7.7 1.1-0.7 4
Table 3: Comparison of cumulative results and ratios Cumulative results FYE Dec (RM m) FY17 FY16* (+/- %) NII 12,207 11,263 8.4% NOII 5,419 4,802 12.8% Net income 17,626 16,065 9.7% OPEX (9,133) (8,651) 5.6% PPOP 8,493 7,414 14.6% Write back/(provision) for loan losses and other assets (2,396) (2,645) -9.4% Shares of JV/Associates 13 115-88.7% Pre-tax profit 6,110 4,884 25.1% Net profit 4,475 3,564 25.6% EPS (sen) 49.6 41 21.0% + / - ppts ROE 9.6 8.3 1.3 NIM 2.63 2.63 0 CI 51.8 53.9-2.1 Credit charge-off 0.69 0.74-0.05 * Including gain on sale of Sun Life in 3Q16 (RM150m) Table 4: Comparison of PBT by key segments PBT by segments (RM m) FY17 FY16 (*/- %) Consumer Banking 2,567 2,296 11.8% Commercial Banking 236 288-18.1% Wholesale banking 2,567 1,678 53.0% GAMI 132 218-39.4% Group Funding 607 404 50.4% PBT 6,110 4,884 25.1% 5
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >10% over the next 12 months. Stock price is expected to rise by >10% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -10% and +10% over the next 12 months. Negative total return is expected, by -10% or more, over the next 12 months. Stock price is expected to fall by >10% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 6