Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: RHB
CIMB Group Holdings Bhd
(Feb 21, RM8.27)
Maintain outperform at RM8.38 with fair value RM9.80: CIMB is expected to release its 4QFY10 results later this week (tentatively tomorrow). Our full-year net profit forecast of RM3.55 billion implies that 4QFY10 net profit would be flattish quarter-on-quarter (q-o-q) and up by 12.5% year-on-year (y-o-y).
However, judging from CIMB Niaga's recent 4QFY10 results, net profit rose 13.1% q-o-q and 81.2% y-o-y (in rupiah terms), and taking into account that 4QFY10 was a strong quarter for the group in terms of initial public offerings (IPOs), we think there is a good chance the full-year results could beat our estimates.
We think an area that could surprise on the upside is non-interest income. CIMB was involved in both the largest domestic IPO as well as the largest IPO in Hong Kong in 4QFY10, and these could help provide a nice lift to non-interest income. Another area that we think could also surprise is in terms of loan impairment allowances. Credit cost has been rather benign thus far (36 basis points, annualised against our assumption of 43 bps) and could continue to remain lower than expected.
Last December, Bank Negara Malaysia updated the guidelines for the classification of rescheduled/restructured facilities, which effectively lengthens the period required before such loans can be reclassified as non-impaired. This could impact ratios such as impaired loans and loan loss coverage, but is unlikely to impact loan impairment allowances, we believe. We note a jump in impaired loans that were reclassified as not impaired in 3QFY10 (RM1.7 billion against 2QFY10: RM700 million). This may have been partly due to such restructured facilities, which could now be caught under the updated guidelines and thus, asset quality ratios may not improve as significantly as in 3QFY10.
We expect CIMB to declare a single-tier interim dividend per share of 4.6 sen (4QFY09: single-tier DPS of 9.25 sen, adjusted for one-for-one bonus issue). Together with the earlier declared interim and special dividends, full-year net DPS would amount to 22.7 sen (FY09: 9.25 sen, net) and this would translate to a net payout ratio of about 47%.
We look forward to the unveiling of management's 2011 targets (return on equity, for example) and dividend policy, both of which we expect to be a step up from current levels. We currently project 2011 ROE of 16.8%, but note that a 17% target could easily be achieved if, say, the dividend payout ratio is raised to 40% (against 19% projected for 2010, ex-specials). Apart from that, management had previously mentioned a target of low-teens loan growth this year while net interest margins are expected to be slightly lower (stable, at best) with pressure likely coming from Indonesia.
We make no change to our earnings forecasts for now. We reiterate our 'outperform' call. Fair value of RM9.80 is based on 17 times CY11 earnings per share. ' RHB Research, Feb 21
This article appeared in The Edge Financial Daily, February 22, 2011.
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: RHB
CIMB Group Holdings Bhd
(Feb 21, RM8.27)
Maintain outperform at RM8.38 with fair value RM9.80: CIMB is expected to release its 4QFY10 results later this week (tentatively tomorrow). Our full-year net profit forecast of RM3.55 billion implies that 4QFY10 net profit would be flattish quarter-on-quarter (q-o-q) and up by 12.5% year-on-year (y-o-y).
However, judging from CIMB Niaga's recent 4QFY10 results, net profit rose 13.1% q-o-q and 81.2% y-o-y (in rupiah terms), and taking into account that 4QFY10 was a strong quarter for the group in terms of initial public offerings (IPOs), we think there is a good chance the full-year results could beat our estimates.
We think an area that could surprise on the upside is non-interest income. CIMB was involved in both the largest domestic IPO as well as the largest IPO in Hong Kong in 4QFY10, and these could help provide a nice lift to non-interest income. Another area that we think could also surprise is in terms of loan impairment allowances. Credit cost has been rather benign thus far (36 basis points, annualised against our assumption of 43 bps) and could continue to remain lower than expected.
Last December, Bank Negara Malaysia updated the guidelines for the classification of rescheduled/restructured facilities, which effectively lengthens the period required before such loans can be reclassified as non-impaired. This could impact ratios such as impaired loans and loan loss coverage, but is unlikely to impact loan impairment allowances, we believe. We note a jump in impaired loans that were reclassified as not impaired in 3QFY10 (RM1.7 billion against 2QFY10: RM700 million). This may have been partly due to such restructured facilities, which could now be caught under the updated guidelines and thus, asset quality ratios may not improve as significantly as in 3QFY10.
We expect CIMB to declare a single-tier interim dividend per share of 4.6 sen (4QFY09: single-tier DPS of 9.25 sen, adjusted for one-for-one bonus issue). Together with the earlier declared interim and special dividends, full-year net DPS would amount to 22.7 sen (FY09: 9.25 sen, net) and this would translate to a net payout ratio of about 47%.
We look forward to the unveiling of management's 2011 targets (return on equity, for example) and dividend policy, both of which we expect to be a step up from current levels. We currently project 2011 ROE of 16.8%, but note that a 17% target could easily be achieved if, say, the dividend payout ratio is raised to 40% (against 19% projected for 2010, ex-specials). Apart from that, management had previously mentioned a target of low-teens loan growth this year while net interest margins are expected to be slightly lower (stable, at best) with pressure likely coming from Indonesia.
We make no change to our earnings forecasts for now. We reiterate our 'outperform' call. Fair value of RM9.80 is based on 17 times CY11 earnings per share. ' RHB Research, Feb 21
This article appeared in The Edge Financial Daily, February 22, 2011.
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