CIMB Group FY18 results within expectations

This article first appeared in The Edge Financial Daily, on March 6, 2019.
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CIMB Group Holdings Bhd
(March 5, RM5.59)
Maintain hold with a target price (TP) of RMR5.85:
While the financial year 2018 (FY18) results were in line, the management’s FY19 guidance is a dampener with expectations of a return of equity (RoE) of sub-10% amid higher information technology investment costs.

Our earnings are trimmed and our FY19 RoE expectation is at the higher end of the management’s 9-9.5% guidance. With little to excite, we downgrade the stock to “hold” with a lower TP of RM5.85 (-85 sen), pegging FY19 valuations at a lower price-to-book value of one time (1.2 times previously, 10% ROE).

CIMB’s FY18 results were within our and consensus expectations.

The fourth quarter 2018 core net profit of RM1.1 billion (+5% year-on-year [y-o-y], -5% quarter-on-quarter) took FY18 core net profit to RM4.5 billion (+3% y-o-y).

Taking into account the lower net interest margin and higher cost assumptions, we trim FY19/20E earnings by 3%/1% respectively.

The management also introduces Forward 23 which supercedes Target 2018 (FY13- FY18 business plan) and is its next five-year business plan (FY19-FY23).

The plan generally seeks to scale and accelerate operations in Malaysia and Indonesia, reposition and grow its operations in Thailand, Singapore and Cambodia, and incubate and invest in countries such as Vietnam, the Philippines and other new ventures.

The financial aspirations include a cost-to-income ratio of 45% by FY23, a common equity tier 1 ratio of 13% and an ROE of 12-13%. — Maybank IB Research, Feb 28