CIMB Group Holdings - Key notes from pre-result meeting

CIMB held a pre-result analyst meeting recently which was chaired by its Deputy CEO, Dato’ Lee Kok Kwan. During the meeting, management said it remained positive on the group’s 2013 outlook as well as in achieving its Core Capital Ratio (CCR) targets. The targets if achieved should further support the group’s balance sheet growth over the next 12-24 months. We are maintaining our target price of RM8.20, which translates to a 2.0x FY13 PBV. Our TP also implies a FY13 PER of 12.7x. We are reaffirming our OUTPERFORM rating on CIMB.

FY13 outlook. Management said its preliminary FY13 loan growth guidance has been set at mid-teens (14%-16%) with a narrower NIM target. We believe that the target is achievable as credit demand in the region and country is still relatively strong despite the continued loans repricing pressure on the NIM. The strong credit demand is supported by 1) Singapore’s strong commercial/SME loan demand, 2) Niaga’s high-teens target for its loan growth and 3) Malaysia’s low-teens loan demand driven by the construction segment. 

On the non-interest income segment, management is also guiding for a positive outlook for 2013 with a high single-digit (8%-9%) growth rate as the group is likely to benefit from the synergies derived from the “CIMB 2.0” reorganisation. It also foresees a strong IB pipeline (including IPOs) as well as strong demand for corporate lending and corporate bonds in the region.

Management has also guided for potential credit charges of approximately 30-40bps in FY13 (vs. the 20bps in FY12). We believe that this is achievable as well and is a conservative forecast. 

In addressing the CCR, management estimated that the group’s CCR was at around 8.0% as at Dec 2012 and we understand that it is likely to announce a one-off Dividend Reinvestment Plan (DRP) in the upcoming 4Q12 result announcement to retain earnings in the reserves. We believe that the earnings retention plan together with asset divestments will be sufficient to boost the group’s capital ratio.  

Recall that the group’s CCR ratio should decline by 30-40bps after the acquisition of RBS and BoC, which should be completed by 1Q13. However, management also guided that there would be a 20bps rise in the CCR ratio from the divestment of CIMB Aviva after a potential goodwill write-off.  The net effect should still see a CCR ratio of above 8% following the above corporate exercises of the group.   

Over the medium term, the group aims to achieve a CCR of at least 10% and this target could be achieved by continuing to dispose off the group’s non-core assets. The possibility of any equity issuance was clearly denied by management.  

We are maintaining our target price of RM8.20, which translates to a 2.0x FY13 PBV and stands at a -1SD level or a 10% discount to the 3-year PBV average of 2.2x. Our TP also implies a FY13 PER of 12.7x. We are reaffirming our OUTPERFORM rating on CIMB.

Source: Kenanga