CIMB Group : Stable asset quality trend BUY

STOCK FOCUS OF THE DAY

CIMB Group : Stable asset quality trend                BUY

We met the Group CFO, Shahnaz Jammal for company updates. The company provided further details on the potential joint venture (JV) of its stockbroking business with China Securities Galaxy Group (CGS). Management highlighted that both parties will be negotiating to iron out the deal structure within 3 months. Expected completion for the deal is sometime in 2017. As highlighted in our earlier note, the deal will extend the distributional reach of the Group's stockbroking business and lower its operating cost. We gather that operating expenses for its stockbroking business are around RM600mil to RM700mil per annum. Successful completion of the deal could see more than RM300mil reduction in operating expenses or 100bps decline in the Group's cost-to-income (CI) ratio. This is lower compared to our earlier estimate. Recall, the Group's CI ratio was 55.6% in FY15 based on normalised cost. For FY16, we project the Group CI ratio to be 54.0%.

For Malaysia, asset quality has been stable with credit cost of 10-12bps. Nevertheless, there will be some upticks in credit cost in 2HFY16. On the plus side, this will not have any significant impact on Malaysia's asset quality. Recently, deposit cost have trended lower but due to the decline in asset yield from OPR cut, the Group has not been able to take advantage of the lower deposit rates. Management hinted that deposit rates could trend up again closer to the end of 2016. This will be from banks intending to capture higher market share for deposits. While loans have been soft in line with industry trends, cost initiatives are on track to lower the Group's CI ratio and overall asset quality has been stable. On the other positives, there were improvements in capital market activities from the increase in issuance of debt securities, taking advantage of lower interest rates. Tentatively, Niaga and CIMB Groups' results will be released on 28th October and 16th November respectively. Maintain our forecast and BUY call with unchanged fair value of RM5.40.            

Others :

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Maxis : Higher ARPU offset subscriber decline    HOLD

ECONOMIC HIGHLIGHTS

China : Expect China to maintain its 2016 GDP growth between 6.5% and 7.0%

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