CIMB Group - OUTPERFORM - 25 May 2012

Period   1Q12

Actual vs.  Expectations

1Q12 PAT of RM1,035m was within the consensus’ forecast (25%) and that of ours (24%). 

Dividends  No dividend was declared.

Key Result Highlights

1Q12  net  interest  income  was  flat  at  -0.3%  QoQ and 9.2% YoY to RM2,073m. QoQ, the net interest margin was squeezed by 6bps while there was also just a flat loan growth of -0.5% in 1Q12.  

However, non-interest incomes were strong with the favourable debt capital market and strong forex flow in 1Q12. The non-interest income of RM1,182m (-9.1% QoQ but up +38.9% YoY) contributed 36% of the total income in 1Q. Robust contribution from wholesale banking’s PBT of RM641m was up from 4Q11’s RM599m. Together with Investment’s PBT of RM170m (up from 4Q11’s RM121m), total PBT contributed by these two segments was higher by 25% QoQ. 

CIMB Niaga meanwhile contributed RM315m to the group PBT, making up a 32% share.  

Net impaired ratio was at a historical low of 0.9% with a 81% allowance coverage, and as, the annualised credit charge 30bps was within target. 

In summary, the achieved 15.6% ROE was marginally lower than the KPI target of 16.4%.

Outlook  We are positive on the group’s recent acquisition strategies and believe that CIMB is poised for a rerating as the group is now of the biggest proxies to ride the ASEAN region resurgence if economic growth in the region remains resilient over the next 2-3 years. The acquisitions are earning accretive over the medium to long term. This will give CIMB a full ASEAN banking coverage. Together with the RBS’s IB Asset acquisition, the group is positioning itself for the next Asia’s recovery cycle in our view. 

During the briefing, management remains positive about the 2012 outlook as well as achieving its key KPI targets. Despite a slower consumer banking in the region, the group foresees strong ECM pipelines in 2Q (including IPOs), good corporate lending and bond issuances pipelines to drive earning in 2H2012.

Change to Forecasts

Maintaining FY12-13E PAT estimates of RM4,495m- RM4,740m for CIMB.

Rating  MAINTAIN OUTPERFORM

Our OUTPERFORM rating on CIMB is maintained as the current share price offers a 18% upside potential to our TP of RM8.50.

Valuation   Maintaining our target price of RM8.50 being 2.1x FY13 PBV (the 2.1x also being the 3-year PBV mean), which also implies 14x FY13 PER.

Risks  Tighter lending rules and a margin squeeze.

Source: Kenanga