CIMB (FV RM8.53 - BUY) 1QFY12 Results Review: A Subdued Start

The group’s annualized 1QFY12 earnings were below our estimates but given the fact that its strong equity deals pipeline has yet to be reflected in 1Q12 earnings, we believe that growth will pick up in 2H2012  as most of the mega equity deals would only be realized from 2Q12 onwards. Management is retaining its FY12 key KPI targets of 16.4% ROE and 16% loans growth. Maintain BUY, at an unchanged FV of RM8.53 (2.3x P/BV, 16.7% ROE). 

Below forecasts. The group’s annualized 1QFY12 earnings were 4.6% and 8.6% below consensus and our estimates. Note that 1QFY12’s annualized earnings are deceptively below targets as  the  significant equity investment banking income from  several  large equity deals (Felda IPO, Integrated Healthcare IPO, Air Asia Thai IPO and Formula One IPO) are only expected to  stream in  from 2Q12 onwards. Headline earnings  jumped 10.3% y-o-y but fell 10.5% q-o-q. However, the 4Q11 earnings incorporated RM250m in exceptional gains from the deconsolidation of its insurance JV  - CIMB Aviva - and  a lumpy RM170m increase in collective assessment from higher PD adjustments to its consumer books. Adjusting for the above-mentioned exceptional items, the q-o-q income trend would have been flat vs the headline 10.5% q-o-q decline.

Robust y-o-y core operating growth. Pre-provision core operating earnings grew by a relatively robust 21.4% y-o-y despite a 16% y-o-y increase in operating costs. The key growth drivers were: i1) a 9% y-o-y growth in net interest income as the group grew its loans books with a more muted impact on margin compression vs its peers,  ii) strong bond origination flows in 1Q and trading gains  helped fuel  a 94.4% y-o-y increase in overall treasury income, and  iii)  a  126.6% increase in forex income. Given the muted equity IB deal flows in 1Q12, the group’s investment banking income sank 78.2% y-o-y. However, given the strong equity deal pipeline, we expect a decent uptick in earnings from this division in the course of the year.

Subdued sequential performance. The flattish sequential earnings trend  was largely attributable to subdued sequential net interest income, which dipped 1.3% q-o-q owing to a 0.5% q-o-q contraction in loans and an uptick in overhead costs (+4.1% q-o-q). This offset the impact of a stronger sequential bond origination flow. Note that the uninspiring sequential net interest income trend is prevalent throughout the industry, as reflected in its peers’ latest quarterly results, due to persistent NIMs compression. On  the brighter side, we note that CIMB’s sequential NIMs compression of 6bps vs its peer average sequential compression of 8bps to 10bps reflects its ability to effectively defend margins while driving loans and deposit growth.

Source: OSK