CIMB Group - OUTPERFORM - 27 June 2012

News   The Asian Petroleum Hub (APH) in Johor has run intomore difficulties as its main financier CIMB has apparently pulled its backing for the project’s restructuring according to news reports.

 APH was placed under receivership in January and CIMB had appointed PricewaterhouseCoopers to oversee the restructuring.

 One of the main contractors for APH, Muhibbah Engineering* announced that it had received news of CIMB withdrawing its support for the proposed restructuring.

  

Comments   We believe this news has a neutral or minimal impact to CIMB’s balance sheet and profitability as the group has made a full provision for this case in year 2010. No further provision is needed according to our previous discussion with management and we have not factored in any recovery in our estimates.

  

Outlook  With regards to CIMB outlook in 2H2012, we are still positive on the group’s recent acquisition strategies and believe that CIMB is poised for a re-rating 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.  

 Management remains positive about the 2012 outlook as well as achieving its key KPI targets. Despite a slower consumer banking growth in the region, the group foresees strong Equity Capital Market ("ECM")(including IPOs) and bond issuance pipelines as well as good corporate lending to drive earning in 2H2012.

  

Forecast  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 is also the 3-year PBV mean), which also implies 14x FY13 PER. 

  

Risks  Tighter lending rules and a margin squeeze

Source: Kenanga