CIMB Group - New record non-interest income in FY12 BUY

- We are maintaining our BUY rating on CIMB Group Holdings Bhd (CIMB), with a revised fair value of RM9.50/share (RM9.70/share previously). This is based on a revised ROE of 15.4% (15.8% previously) FY13F, taking into account a dividend reinvestment scheme (DRS) and a revised fair P/BV of 2.2x (2.3x previously).

- CIMB’s total FY12 net earnings came in at 1.8% above our forecast and 0.9% above consensus. The higher net earnings were due primarily to higher-than-expected interest income, non-interest income as well as low loan loss provisions.

- The group announced a second interim dividend of RM0.1838 in cash or an optional DRS. For FY12, the total dividends amounted to RM0.2338/share, at a payout ratio of 40.0%, in line with its earlier guidance. This is within our forecast of RM0.26/share.

- Loans growth was at 8.9%, but this includes the effects of the Rupiah translation. Excluding the currency effect, group loans growth was at 10%, which we view as decent despite the loans growth coming in at below the earlier articulated growth of a high 16%. NIM was well managed with only a 5bps YoY decline.

- Non-interest income was 11.0% lower QoQ in 4QFY12, due mainly to absence of gains on sale of NPL for CIMB Thai (RM133.5mil in 3QFY12). As for the fee income segment, there was a large increase of 20.4% QoQ in 4QFY12, stemming from the corporate advisory fees segment (RM76.1mil in 4QFY12 vs. RM9.6mil in 3QFY12). This was due to CIMB’s participation in an insurance M&A. All in, non-interest income held up well, coming in at RM1.06bil, translating into an annualised level of RM4bil. FY12’s total non-interest income was RM4.4bil, a new record level.

- We reiterate our view that the base gross interest income for the group is unlikely to drop to the pre-2005 level of say RM1.5bil in FY04. Recall this was before CIMB’s full transformation into a universal bank.

- We estimate the base close-to-worst-case non-interest income should be at least RM2.5bil given the revamped wholesale banking platform (our forecast: RM4.2bil). This implies a base ROE of 12.9% FY13F, net earnings of RM3.8bil and a base fair value of RM6.80/share FY13F.

- Following the acquisition of RBS, and BoC in the Philippines, CIMB will provide the best banking exposure among the local banks for growth across Asia.

- We expect the following re-rating catalysts for CIMB:- (a) sustainability in non-interest income; (b) better-thanexpected asset quality.

Source: AmeSecurities