CIMB Group - Further evidence of sustained non-interest income Buy

- We are maintaining our BUY rating on CIMB Group Holdings Bhd (CIMB), with an unchanged fair value of RM9.70/share. This is based on an ROE of 15.8% FY13F and an unchanged fair P/BV of 2.3x.

- CIMB’s 3Q if annualised came in 3.3% above our forecast, and 3.0% above consensus estimate of RM4,278mil FY12F. The 9M net earnings made up 78.8% of our fullyear forecast and 78.6% of consensus forecast.  

- Group loans growth was flattish at 0.4% QoQ in 3QFY12 (2QFY12: 5.0% QoQ), partly affected by currency translation effect for Rupiah loans, and partly due to its earlier prudent stance in terms of consumer loans in Malaysia.  CIMB reported an overall loans growth of 9% for 9MF12, which is below its earlier target of 16%. NIM decline was marginal at only 4bps QoQ for 3QFY12, but we view this as relatively resilient considering the strong improvement of 9bps QoQ in the previous 2QFY12. Asset quality continued to improve in this quarter. 

- More importantly, non-interest income did well, posting an 18.8% QoQ rise in 3Q. This came mainly from a resilient fee income portion of its non-interest income, which managed to improve by 1.7% QoQ in 3QFY12, from an already high base in 2QFY12. We believe this was contributed by CIMB’s participation in IHH’s IPO. 

- But on top of this, the treasury and markets division continued to be robust, with an 18.8% QoQ rise in 3QFY12. The corporate banking division was also buoyant, with PBT expanding by 31.4% QoQ. The two divisions’ robust performance was attributed to better spreads, but more importantly, also due to its internal revamp which had led to better cohesion in formulating forex and hedging solutions for corporate clients across the region. 

- The company said that it has detected continuing robust momentum in its corporate banking and treasury and markets divisions, given that historical relationship with these corporates has largely been in the lending space.  

- Thus, despite the flat loans growth in 3QFY12, we are positive on CIMB’s 3QFY12 results. The latest quarter provides convincing evidence that CIMB’s non-interest income remained strong and is sustained by third party treasury and markets flows, rather than solely on its investment banking division. We believe CIMB’s fee income focus, rather than purely lending, would be  the more appropriate approach post the BASEL 3’s stricter capital regime.  We expect the following re-rating catalysts for CIMB:- (a) sustainability in non-interest income; (b) better-than-expected asset quality. 

Source: AmeSecurities