CIMB Group Holdings Bhd (Feb 8, RM7.11)
Maintain underperform with fair value RM6.20: Management said that the main focus is to find investors to complete the Asia Petroleum Hub project in Johor. Until then, CIMB will not put in more money into it.
The bulk of provisioning was made back in 2010 and no further provision is required at this juncture. Although the loan has not been fully provided for, management said the balance required is not much while the upside from recoveries could be quite decent.
Return on equity (ROE) for 2011 will end up at 16% to 17%, missing the 17% target. Loan growth in 2011 was decent while non-interest income (NII) was better than expected, especially considering that 2010 non-interest income was helped by lumpy items.
However, management also said that credit cost was higher in 4QFY11 as the group beefed up its limited liability company (LLC) (80% at end-3QFY11) by raising individual allowances, but full-year credit cost would still be below 40 basis points (9MFY11: 12 bps).
This helps lend support to our observation from the December 2011 banking statistics, where we noted that system individual allowances had risen 2.6% quarter-on-quarter while LLC rose 338 bps q-o-q. Full-year dividend payout will be within the 40% to 60% guided range.
More details on 2012 outlook were given during 4QFY11 results briefing but the broad outline includes: (i) loan growth should be decent.
There have been some pockets of activity in the Economic Transformation Programme, while the domestic small and medium enterprise space is an area CIMB is looking to get back into once economic conditions stabilise; (ii) net interest margin (NIM) for 2012 was largely stable at 4QFY11 level; (iii) the non-interest income pipeline appears decent with the debt capital market off to a good start (Plus bonds) and rates and foreign exchange are doing well; (iv) continued focus on cost control measures, especially removal of duplications. CIMB’s target is to reduce cost income ratio (CIR) to 50% by 2013 (9MFY11: 56.2%); and (v) no major asset quality issues for Malaysia and Indonesia but non-performing loans in Thailand could rise further once the moratorium for borrowers affected by the floods ends. This is unlikely to be too significant at the group level.
We make no change to our earnings forecasts for now. Our fair value of RM6.20 remains unchanged and is based on the average values of 10.5 times 2012 earnings per share and 1.7 times 2012 book value per share.
We remain cautious with respect to global economic conditions ahead and given that banks are viewed as proxies to the economy, we think the banks will not be spared from a slowdown.
We see higher earnings risk for CIMB which could stem from higher than expected loan impairment allowances and weaker than expected capital market activities. We therefore retained our “underperform” call on the stock. — RHB Research Institute, Feb 8
This article appeared in The Edge Financial Daily, February 9, 2012.
Maintain underperform with fair value RM6.20: Management said that the main focus is to find investors to complete the Asia Petroleum Hub project in Johor. Until then, CIMB will not put in more money into it.
The bulk of provisioning was made back in 2010 and no further provision is required at this juncture. Although the loan has not been fully provided for, management said the balance required is not much while the upside from recoveries could be quite decent.
Return on equity (ROE) for 2011 will end up at 16% to 17%, missing the 17% target. Loan growth in 2011 was decent while non-interest income (NII) was better than expected, especially considering that 2010 non-interest income was helped by lumpy items.
However, management also said that credit cost was higher in 4QFY11 as the group beefed up its limited liability company (LLC) (80% at end-3QFY11) by raising individual allowances, but full-year credit cost would still be below 40 basis points (9MFY11: 12 bps).
This helps lend support to our observation from the December 2011 banking statistics, where we noted that system individual allowances had risen 2.6% quarter-on-quarter while LLC rose 338 bps q-o-q. Full-year dividend payout will be within the 40% to 60% guided range.
More details on 2012 outlook were given during 4QFY11 results briefing but the broad outline includes: (i) loan growth should be decent.
There have been some pockets of activity in the Economic Transformation Programme, while the domestic small and medium enterprise space is an area CIMB is looking to get back into once economic conditions stabilise; (ii) net interest margin (NIM) for 2012 was largely stable at 4QFY11 level; (iii) the non-interest income pipeline appears decent with the debt capital market off to a good start (Plus bonds) and rates and foreign exchange are doing well; (iv) continued focus on cost control measures, especially removal of duplications. CIMB’s target is to reduce cost income ratio (CIR) to 50% by 2013 (9MFY11: 56.2%); and (v) no major asset quality issues for Malaysia and Indonesia but non-performing loans in Thailand could rise further once the moratorium for borrowers affected by the floods ends. This is unlikely to be too significant at the group level.
We make no change to our earnings forecasts for now. Our fair value of RM6.20 remains unchanged and is based on the average values of 10.5 times 2012 earnings per share and 1.7 times 2012 book value per share.
We remain cautious with respect to global economic conditions ahead and given that banks are viewed as proxies to the economy, we think the banks will not be spared from a slowdown.
We see higher earnings risk for CIMB which could stem from higher than expected loan impairment allowances and weaker than expected capital market activities. We therefore retained our “underperform” call on the stock. — RHB Research Institute, Feb 8
This article appeared in The Edge Financial Daily, February 9, 2012.
