CIMB (FV RM8.05 - BUY) FY11 Results Review: Scope For Positive Surprise

The group’s  full-year FY11 earnings were in line with our estimates.  The commendable ROE of 17.8% in 4QFY12 sets the stage for a more promising 2012 outlook. Management has also turned more optimistic in light of the improved NIMs outlook, stronger deal pipeline and resilient asset quality. We believe that there is scope for earnings to beat  consensus’  relatively conservative earnings growth forecast of 2% for FY12. Maintain BUY, at an unchanged FV of RM8.05 (2.2x P/BV, 16.3% ROE). 

In line. The group’s FY11  full-year  earnings  were  largely within our and consensus estimates,  representing 104% and 102% of  the respective full-year estimates.  There was a promising uptick in 4QFY11 ROE to 17.8% vs 3Q11’s 16.3% and 16.4% for fullyear FY11. Although there was an exceptional gain of RM250m from the deconsolidation of CIMB Aviva, the one-off gain was to a certain extent offset by a oneoff spike in  the  collective allowance to raise its domestic consumer loans’ loss given default (LGD) computation to 100%. Offsetting both exceptional gains and loss infers only a marginal exceptional gain of RM45m and  as such, a large portion of the  robust 17.8% ROE achieved in 4QFY12 was indeed derived from core operating performance. In 4Q12, pre-provision core operating earnings grew  6.0% q-o-q and 9.6% y-o-y. On a full-year comparison, pre-operating provision was flat y-o-y while earnings expanded 8.0% y-o-y on the back of a 19.7% y-o-y decline in provisions.

Cost containment,  strong traction in domestic deposits  the bright spots. Management’s efforts to rein in overhead costs in FY11 have certainly paid off, with overall overhead costs remaining flat in FY11 compared to FY10, despite a slight uptick in total income growth. More importantly the group displayed promising domestic retail deposit growth, with the  overall CASA growth of 25.8% y-o-y and 15.7% y-o-y respectively providing  ample liquidity to drive loans growth when  the  economic environment improves.

Management more optimistic  on  2012.  Despite the still challenging economic environment, management points to a  potentially better outlook in 2012 with the following expectations: i) improved net interest margins (NIMs), ii) stronger deal pipeline, and iii) the  resilient Indonesian consumption growth story to remain intact. These were essentially the same drivers that we highlighted in our recent  report  upgrading  CIMB. Although loans growth is likely to moderate in 2012 to the low teens vs the 14.3% growth in 2011, the focus on profitability and improved yield management will boost net interest income growth compared with the 1.1% pace in 2011.

Source: OSK188