CIMB Group - The Emerging ASEAN Bank

News   CIMB Group Holdings (“CIMB”) wants to pare down the revenue contribution from its domestic operations to 40% from the current 59% as it increases its regional presence significantly by 2015, said its chief executive Datuk Seri Nazir Razak.

 Accordingly, he would also like to see consumer banking expand (from 40%) to 50-60% of the business by then.  Nazir said CIMB Thai, the bank's Thai subsidiary, will also make an application to the Laos central bank to enable its foray into the market.

 The bank is also studying various options to scale up its operations in Thailand.

 Meanwhile, CIMB Niaga has grown in Indonesia's strong growth momentum and under-penetrated market.

  

Comments   We are optimistic on the group’s strategy with its plan to raise its overseas revenues contribution to 60% driven by the low-risk consumer segment.  

 We believe this will able to position the group to enjoy a higher balance sheet expansion as its Malaysian banking businesses has reached a saturation level.

 With the banking market in Indonesia, Thailand and The Philippines remains under penetrated, a move to expand its overseas business should reward the group with  a higher RoE in our view.

 The group together with MAYBANK are now of the biggest proxies to ride the ASEAN region resurgence where the region’s economic growth is expected to remain resilient over the next 2-3 years.

  

Outlook  With regards to CIMB outlook in 2H2012, we are still positive on the group’s prospect, including its recent acquisition strategies.  As highlighted above, we believe that CIMB 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. 

 Its recent acquisitions are earning accretive over the medium-to-long term. This will give CIMB a full ASEAN banking coverage. Together with the RBS IB Asset acquisition, the group is positioning itself for the next Asia’s recovery cycle in our view.  

  

Forecast  Maintaining our FY12-13E PAT estimates of RM4,495mRM4,740m for CIMB.

  

Rating MAINTAIN OUTPERFORM

 Our OUTPERFORM rating on CIMB is maintained as the current share price offers a 11% upside potential to our revised TP of RM8.20.

  

Valuation   We have lowered our target price to RM8.20 (from RM9.40 previously) being at 2.0x FY13 PBV ( at -1SD level or 10% discount to its  3-year PBV average of 2.2x) as the share price performance could be capped by the upcoming general elections risk over the next 3-6 months.  Our new TP implies a 12.7x FY13 PER. 

  

Risks  Tighter lending rules and a margin squeeze.

Source: Kenanga