CIMB Group Holdings Bhd (Nov 16, RM7.06)
Maintain sell at RM7.10 with target price of RM6.80: CIMB’s 9MFY11 net profit of RM2.86 billion (+9.7% year-on-year) was broadly within expectations at 73% of our full-year forecast and consensus. What is positive is that management remains vigilant in the current uncertainty and continues to enhance its capital base. We do expect CIMB’s valuation premiums to the sector to narrow amid volatility in the capital markets and high foreign shareholding. We maintain our “sell” call with an unchanged target price of RM6.80 (1.8 times 2012 price-to-book value, return on equity (ROE): 15.1%).
Pre-tax profit for 3Q remianed flat quarter-on-quarter (q-o-q). There were no major surprises across the business segments. Net interest margin (NIM) contracted three basis points (bps) q-o-q to 3.12%, partially offsetting a 4.6% q-o-q expansion in loans. Non-interest income (+6% q-o-q) was bolstered by investment gains, which compensated for a 15% q-o-q decline in fee income.
Year-to-date loan growth of 10% (15% annualised) was ahead of our expectations, but this was driven primarily by strong overseas lending (+27% YTD), while domestic lending has been subdued (+2% YTD). Management remains cautious about lending to hire purchase and SMEs, and has been selective of its corporate clients on the domestic front. We look to a moderation in loan growth to about 12.4% for 2012 from 13.9% in 2011, but expect stronger domestic loan growth to compensate for a moderation abroad.
Management’s cost-cutting initiatives appear to be bearing fruit, with expenses up just 2% q-o-q — the target is to cut the group’s cost/income ratio to 50% by 2013 (56% in 3Q). Management continues to see a healthy pipeline for investment banking/Treasury. The group has no exposure to the eurozone save for some derivatives collateralised by cash. On the flip side, absolute non-performing loans ticked up (+1% q-o-q) as did credit charge costs (23 bps in 3Q against 19 bps in 2Q).
Management’s ROE target this year of 17% is unlikely to be achieved, with 9MFY11’s ROE coming in at 16%, in line with our estimates. We forecast a lower ROE of 15% in 2012. Our forecasts are maintained, with expectations of moderate growth in 2012 on the back of lower non-interest income contributions. — Maybank IB Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
Maintain sell at RM7.10 with target price of RM6.80: CIMB’s 9MFY11 net profit of RM2.86 billion (+9.7% year-on-year) was broadly within expectations at 73% of our full-year forecast and consensus. What is positive is that management remains vigilant in the current uncertainty and continues to enhance its capital base. We do expect CIMB’s valuation premiums to the sector to narrow amid volatility in the capital markets and high foreign shareholding. We maintain our “sell” call with an unchanged target price of RM6.80 (1.8 times 2012 price-to-book value, return on equity (ROE): 15.1%).
Pre-tax profit for 3Q remianed flat quarter-on-quarter (q-o-q). There were no major surprises across the business segments. Net interest margin (NIM) contracted three basis points (bps) q-o-q to 3.12%, partially offsetting a 4.6% q-o-q expansion in loans. Non-interest income (+6% q-o-q) was bolstered by investment gains, which compensated for a 15% q-o-q decline in fee income.
Year-to-date loan growth of 10% (15% annualised) was ahead of our expectations, but this was driven primarily by strong overseas lending (+27% YTD), while domestic lending has been subdued (+2% YTD). Management remains cautious about lending to hire purchase and SMEs, and has been selective of its corporate clients on the domestic front. We look to a moderation in loan growth to about 12.4% for 2012 from 13.9% in 2011, but expect stronger domestic loan growth to compensate for a moderation abroad.
Management’s cost-cutting initiatives appear to be bearing fruit, with expenses up just 2% q-o-q — the target is to cut the group’s cost/income ratio to 50% by 2013 (56% in 3Q). Management continues to see a healthy pipeline for investment banking/Treasury. The group has no exposure to the eurozone save for some derivatives collateralised by cash. On the flip side, absolute non-performing loans ticked up (+1% q-o-q) as did credit charge costs (23 bps in 3Q against 19 bps in 2Q).
Management’s ROE target this year of 17% is unlikely to be achieved, with 9MFY11’s ROE coming in at 16%, in line with our estimates. We forecast a lower ROE of 15% in 2012. Our forecasts are maintained, with expectations of moderate growth in 2012 on the back of lower non-interest income contributions. — Maybank IB Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
