CIMB Group 霍尔丁:Downgrade to Reduce,Too much has been pr


Downgrade to Reduce from Hold. CIMB has outperformed (+49% YTD vs. 8% forthe KLCI) on hopes of a sharp credit cost driven earnings rebound. Although creditcost has improved, we believe that it is not enough to justify valuations at 14x 2018eEPS, which is close to its historical 15x PE average. We downgrade our rating toReduce from Hold due to the lack of positive earnings drivers. We raise our targetprice to MYR5.40 from MYR5.10 after rolling forward our BV base to Dec 2018e fromDec 2017e. All our other Gordon Growth Model assumptions remain unchanged.

Within consensus expectations. 2Q17 PPoP was up 18% y-o-y to IDR12,821bnthanks to a 14% y-o-y increase in total income. Despite this, pre-tax profit was up byonly 4% y-o-y to IDR 8,145bn due to a 63% y-o-y increase in absolute credit cost.

    Our new target price implies 0.9x Dec 2018e BV and 11x 2018e EPS.

    Although annualized pre-tax earnings are within our full year estimate and 9% belowconsensus, we consider the results to be in-line with market expectations as BBRIhas alluded to credit cost tapering off in 2H17e. BBRI stated that it has been frontloadingcredit cost into 1H17.

    No surprises in 2Q17. CIMB’s top line seems to have stabilized with total incomeand PPoP remaining stable at c.MYR4.3 bn and c.MYR2.1 bn per quarter in the pastthree quarters, respectively. Despite a stable PPoP, its PBT over this period hasbeen volatile due to credit cost. 2Q17 credit cost rose due to the absence of lumpywritebacks in 1Q17. This caused 2Q17 PBT to fall 11% q-o-q to MYR1,434m.

    Slower loan growth but NIM increases. Loan growth slowed with total loans rising12% y-o-y vs. 17% in 1Q17. This could be due to repayments from corporateborrowers. As a result, the loan deposit ratio fell to 90% (1Q17: 93%). NIM increased54bp q-o-q to 8.32%. It is difficult to ascertain what drove this as BBRI released justpresentation slides without any financials at the time of writing. However, we would notbe surprised if this NIM strength was caused by accounting reclassification. BBRI’sNIM has historically been volatile due to accounting changes and reclassifications.

    Overall, the results were within expectations.

    These accounting changes may have masked the short-term NIM direction but thelong-term trend has been one of NIM slippage. To put it into perspective, NIM hasfallen to 7.68% in 2016 from 10.15% in 2006. BBRI is the only bank among the topfour largest banks in the country to have seen consistent NIM slippage over the years.

    Stable P&L drivers. Asset growth was soft with loans up 0.3% q-o-q in constantcurrency terms. Loans contracted in most geographies from lumpy corporate loanrepayments except in China and non-core countries, which makes up <4% of thebook. Total assets contracted 1% q-o-q. NIM stabilized at 2.71% in 2Q17. Gross NPLwas stable q-o-q at 3.21%. Despite being range-bound from 3.04%-3.42% sinceend-2013, gross NPL is still near an all-time low. It is very unlikely that this willimprove by much. Meanwhile, loan loss coverage has fallen to 78% from a recentpeak of 85% in 4Q15. Thailand, which makes up 9% of loans but 23% of group grossNPLs, saw its gross NPL ratio rise to 7.8% from 6.6% in 1Q17.

    Asset quality slippage. Gross NPL was fairly stable q-o-q at 2.34% but specialmention loans rose to 6.25% of loans (1Q17: 5.41%). This could be seasonal due tothe Lebaran period in June. Credit cost was elevated at 2.7% of average net loans(1Q17: 2.6%). However, BBRI explained that it is front-loading credit cost into 1H17.

    Outlook ahead. CIMB did not sound too optimistic on 2H17 top-line prospects to us.

金沙正规娱乐官网,    Guidance changes. For 2017, BBRI continues to guide for 12-14% loan growth, aloan:deposit ratio of 88-92%, gross NPL of 2.2-2.4%, credit cost of 2.2-2.4% and loanloss coverage of 160-170%. However, it lowered its NIM guidance to 7.8-8% from8.0-8.2%. BBRI also cut its operating cost growth to 8-10% from 15-18%.

    The guidance is for a pickup in lending growth coupled with moderate NIM erosion.

    Maintain Reduce and raise TP to IDR12,200 from IDR10,820. BBRI’s stock is up28% YTD. The stock now trades at 12x 2018e EPS, which is 1SD above its mean PEof 10x. At these levels, we believe all of the positives are priced in. We raise our targetprice after rolling forward our book value base to December 2018e from December2017e. All our other Gordon growth model assumptions remain unchanged.

    We would not be surprised if quarterly total income and PPoP remained stuck atc.MYR4.3bn and c.MYR2.1bn, respectively, in the next four to six quarters. Thismeans that bottom-line earnings growth will have to be driven by an improvement incredit cost, which at this stage remains uncertain. CIMB continues to guide for0.6%-0.65% credit cost in 2017e vs. 0.66% in 1H17 (HSBC: 0.65%).

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