CIMB Group - Revenue-generation capability sustained in 2Q

-  We are maintaining our BUY rating on CIMB Group Holdings Bhd (CIMB), with an unchanged fair value of RM8.70/share. This is based on an ROE of 15.7% FY12F and a fair P/BV of 2.3x.

-  CIMB’s posted a strong 9.8% QoQ increase in net earnings in 2QFY12, which if annualised would be 1.9% above our forecast, and 3.3% above consensus. The 1HFY12’s net earnings made up 49.8% of our net earnings forecast and 50.4% consensus forecast for FY12F.  

-  Group loans growth was significantly better at 5.0% QoQ in 2QFY12, compared with -0.5% QoQ in 1QFY12. Annualised loans growth would be at 9.0% in 2QFY12, far better than the -1.9% annualised rate in 1QFY12. The higher growth was attributed to stronger corporate loans, as the company is now more comfortable in terms of the credit risk environment across the region in 2QFY12. NIM strengthened significantly by 9bps in 2QFY12 (1QFY12: -6bps QoQ), attributed to the group’s stance to increase utilisation of LDR and consequently a lesser focus on maintaining liquidity. 

-  Non-interest income posted a drop of 11.9% QoQ, but this largely stemmed from a lower investment and trading income line. Non-interest income if annualised is still ahead of our estimate by 8%.  As for the fee income segment, this posted a strong 16.8% QoQ jump to RM421.8mil in 2QFY12, from RM361.0mil in 1QFY12. The 2QFY12 performance was likely boosted by CIMB’s participation in Felda Global Ventures Holdings Bhd’s (Felda) IPO.

-  Gross impaired loans came down by 2.6% QoQ in 2QFY12. This was largely backed by recoveries, which is positive. Gross impaired loans ratio has thus improved to 4.4% in 2QFY12, from 4.8% in 1QFY12. Loan loss cover was strengthened further to 82.3% in 2QFY12, from 81.3% in 1QFY12.  Credit cost was much lower, estimated at only 11bps in 2QFY12, compared with 30bps in 1QFY12. The company hints it may lower its earlier guidance of 31 bps FY12F.   

-  2QFY12 was strong in terms of loans growth, NIM, and fee income as well as lower-than-expected loan loss provisions. We expect the following re-rating catalysts for CIMB:- (a) sustainability in non-interest income; (b) better-than-expected asset quality. 

Source: AmeSecurities