Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: TA
CIMB Group Holdings Bhd
(Feb 28, RM 8.06)
Buy at RM8.07 with target price of RM10.80: CIMB turned in a stronger operating quarter, registering operating income growth of 10.2% quarter-on-quarter (q-o-q). However, the group's bottom line weakened slightly, netting RM878 million for 4Q. The 4.1% q-o-q decline in net profit was mostly attributed to a 20.3% q-o-q surge in overhead expenses and higher taxes. CIMB's results on the upside were not surprising. Instead, year-to-date (YTD)'' net profit of RM3.52 billion was in line with ours and consensus' full-year estimates of RM3.51 billion and RM3.57 billion respectively.
Net profit for FY10 surged 25% year-on-year (y-o-y), anchored by a 12.7% jump in operating income, better net interest margin (NIM) and a sharp decline in loan impairment. As a result, return on equity (ROE) strengthened to 16.3%, from 15% last year. Operating expenses also accelerated close to 18%, attributed to higher marketing and administrative and general expenses, apart from establishment and personnel costs. The increase in overheads pushed the cost-to-income ratio up to 55.3% compared with 52.8% a year earlier.
Non-interest income advanced 11.2% on the back of a pick-up in capital market activities and hefty gains from the sale/redemption of financial investments.
Net interest registered a 13.5% y-o-y increase on the back of wider NIM and strong loan growth. Total loans advanced 12.4% led by consumer banking. Elsewhere, advances from the corporate and investment division climbed l 1.8%. CIMB's growing branch network also led to a broadening deposit base. Total deposits grew close to 12% with current account and savings accounts rising a 23.6%.
By geographical segment, profit before tax (PBT) contribution from CIMB Niaga doubled to RM1.57 billion from RM787 million a year earlier, underpinned by stronger income and lower provision expense. Loan growth was up 18% y-o-y while the loan loss charge eased to 120 basis points against 150 bps in FY09. ''
CIMB Thai remained profitable, registering a net profit of RM85 million as total loans and advances grew 17.1% y-o-y. We note that the CIMB group is making significant headway in Indonesia and Thailand by winning accolades and raising market share in the deposit, mortgage, hire-purchase, credit card and small and medium enterprise segments. Overseas operations now account for around 48% of total PBT compared with 25% in FY09.
Incorporating the FY10 results, we tweak our FY11, FY12 and FY13 net profit projections to RM4.07 billion, RM4.67 billion and RM5.46 billion respectively, from RM4.03 billion, RM4.67 billion and RM5.35 billion .
Some key assumptions for FY11 to FY13 include average loan and deposit growth of 18% and 20%, average gross impaired loan ratio of 5.2%, and average ROE of around 17.5%. Management is targeting ROE of 17% for FY11.
We maintain our target price for CIMB shares at RM10.80, assuming cost of equity of 9.4%, ROE of 16.4% and sustainable long-term growth of 6%. We believe the possibility of general election, roll-out of projects under the Economic Transformation Programme and influx of foreign funds for currency gains could fuel a rally for banking stocks. We recommend a 'buy' call for CIMB.
Key upside and downside risks to our fair value include better-than-expected contribution from other regional operations, in particular CIMB Thailand, Singapore, China and Cambodia. We also took into account synergies, cross-selling opportunities and cost savings from the implementation of 1Platform, and a further pick-up in capital market activities resulting in a larger pipeline of deals. ' TA Securities, Feb 28
This article appeared in The Edge Financial Daily, March 1, 2011.
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: TA
CIMB Group Holdings Bhd
(Feb 28, RM 8.06)
Buy at RM8.07 with target price of RM10.80: CIMB turned in a stronger operating quarter, registering operating income growth of 10.2% quarter-on-quarter (q-o-q). However, the group's bottom line weakened slightly, netting RM878 million for 4Q. The 4.1% q-o-q decline in net profit was mostly attributed to a 20.3% q-o-q surge in overhead expenses and higher taxes. CIMB's results on the upside were not surprising. Instead, year-to-date (YTD)'' net profit of RM3.52 billion was in line with ours and consensus' full-year estimates of RM3.51 billion and RM3.57 billion respectively.
Net profit for FY10 surged 25% year-on-year (y-o-y), anchored by a 12.7% jump in operating income, better net interest margin (NIM) and a sharp decline in loan impairment. As a result, return on equity (ROE) strengthened to 16.3%, from 15% last year. Operating expenses also accelerated close to 18%, attributed to higher marketing and administrative and general expenses, apart from establishment and personnel costs. The increase in overheads pushed the cost-to-income ratio up to 55.3% compared with 52.8% a year earlier.
Non-interest income advanced 11.2% on the back of a pick-up in capital market activities and hefty gains from the sale/redemption of financial investments.
Net interest registered a 13.5% y-o-y increase on the back of wider NIM and strong loan growth. Total loans advanced 12.4% led by consumer banking. Elsewhere, advances from the corporate and investment division climbed l 1.8%. CIMB's growing branch network also led to a broadening deposit base. Total deposits grew close to 12% with current account and savings accounts rising a 23.6%.
By geographical segment, profit before tax (PBT) contribution from CIMB Niaga doubled to RM1.57 billion from RM787 million a year earlier, underpinned by stronger income and lower provision expense. Loan growth was up 18% y-o-y while the loan loss charge eased to 120 basis points against 150 bps in FY09. ''
CIMB Thai remained profitable, registering a net profit of RM85 million as total loans and advances grew 17.1% y-o-y. We note that the CIMB group is making significant headway in Indonesia and Thailand by winning accolades and raising market share in the deposit, mortgage, hire-purchase, credit card and small and medium enterprise segments. Overseas operations now account for around 48% of total PBT compared with 25% in FY09.
Incorporating the FY10 results, we tweak our FY11, FY12 and FY13 net profit projections to RM4.07 billion, RM4.67 billion and RM5.46 billion respectively, from RM4.03 billion, RM4.67 billion and RM5.35 billion .
Some key assumptions for FY11 to FY13 include average loan and deposit growth of 18% and 20%, average gross impaired loan ratio of 5.2%, and average ROE of around 17.5%. Management is targeting ROE of 17% for FY11.
We maintain our target price for CIMB shares at RM10.80, assuming cost of equity of 9.4%, ROE of 16.4% and sustainable long-term growth of 6%. We believe the possibility of general election, roll-out of projects under the Economic Transformation Programme and influx of foreign funds for currency gains could fuel a rally for banking stocks. We recommend a 'buy' call for CIMB.
Key upside and downside risks to our fair value include better-than-expected contribution from other regional operations, in particular CIMB Thailand, Singapore, China and Cambodia. We also took into account synergies, cross-selling opportunities and cost savings from the implementation of 1Platform, and a further pick-up in capital market activities resulting in a larger pipeline of deals. ' TA Securities, Feb 28
This article appeared in The Edge Financial Daily, March 1, 2011.
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