Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: AMMB
CIMB Group Holdings Bhd
(May 26: RM 8.28)
Maintain buy with an unchanged fair value of RM9.70 a share: Our call for CIMB Group is based on an unchanged return on equity (ROE) of 18% in FY11F, leading to a fair price-to-book value of 2.8 times.
CIMB reported net earnings of RM917 million (-4.2% quarter-on-quarter, +9.3% year-on-year) for 1QFY11. Annualised net earnings came in 16% below our estimate and 13% below consensus.
The main shortfall was in non-interest income, which came in 22.7% below our forecast. This was due mainly to the absence of fees related to large mandates as well as less redemption activity on its securities portfolio. However, the company remains optimistic in terms of the pipeline ahead for the capital markets.
Overall loans rose 12% on an annualised basis. We estimate overall net interest margin (NIM) to have declined by 34 basis points (bps) q-o-q in 1QFY11.
The decline in NIM was attributed largely to CIMB Niaga (-95bps q-o-q), as well as CIMB Thai due to an expansion in its corporate loan book. In terms of NIM for Malaysia, the company hinted that the drop was marginal.
The group expects NIM to be aided by the recent rate hike in Malaysia. Overall, the group hinted that NIM will likely compress at about 10bps overall in FY11F, in line with its previous guidance.
Gross impaired loans were lowered by 0.8% q-o-q in 1QFY11, the fourth consecutive quarter of improvement since 1QFY10. The gross impaired loans ratio declined to 5.9% as at end-March 2011 from 6.1% as at end-December 2010. Loan loss cover is stable, at 80.6% as at end-March 2011 against 81.1% at end-December 2010.
Overall loan loss provision came in much lower than expected at only RM6 million in 1QFY11, compared with 4QFY10's RM168 million and 1QFY10's RM150 million.
This was attributed to the reversal of delinquencies that spiked upwards in 4QFY10. Credit costs amounted to only 1bps in 1QFY11, compared with 41bps in 4QFY10 and 40bps in 1QFY10. We are maintaining our overall credit cost assumption of 40bps for FY11F.
CIMB's annualised net earnings in 1QFY11 were lower than our estimate, but this was mainly due to its non-interest income segment. This was offset by low loan loss provisions. However, we expect non-interest income to pick up with realisation of the government's Economic Transformation Programme.
Key re-rating catalysts are: (i) the ability to achieve its high loans growth target of 18%; (ii) continuing improvement in current account, savings account deposit; (iii) stronger than expected non-interest income; and (iv) achievement of ROE target of 18% for FY11F. ' AmResearch, May 26
This article appeared in The Edge Financial Daily, May 27, 2011.
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: AMMB
CIMB Group Holdings Bhd
(May 26: RM 8.28)
Maintain buy with an unchanged fair value of RM9.70 a share: Our call for CIMB Group is based on an unchanged return on equity (ROE) of 18% in FY11F, leading to a fair price-to-book value of 2.8 times.
CIMB reported net earnings of RM917 million (-4.2% quarter-on-quarter, +9.3% year-on-year) for 1QFY11. Annualised net earnings came in 16% below our estimate and 13% below consensus.
The main shortfall was in non-interest income, which came in 22.7% below our forecast. This was due mainly to the absence of fees related to large mandates as well as less redemption activity on its securities portfolio. However, the company remains optimistic in terms of the pipeline ahead for the capital markets.
Overall loans rose 12% on an annualised basis. We estimate overall net interest margin (NIM) to have declined by 34 basis points (bps) q-o-q in 1QFY11.
The decline in NIM was attributed largely to CIMB Niaga (-95bps q-o-q), as well as CIMB Thai due to an expansion in its corporate loan book. In terms of NIM for Malaysia, the company hinted that the drop was marginal.
The group expects NIM to be aided by the recent rate hike in Malaysia. Overall, the group hinted that NIM will likely compress at about 10bps overall in FY11F, in line with its previous guidance.
Gross impaired loans were lowered by 0.8% q-o-q in 1QFY11, the fourth consecutive quarter of improvement since 1QFY10. The gross impaired loans ratio declined to 5.9% as at end-March 2011 from 6.1% as at end-December 2010. Loan loss cover is stable, at 80.6% as at end-March 2011 against 81.1% at end-December 2010.
Overall loan loss provision came in much lower than expected at only RM6 million in 1QFY11, compared with 4QFY10's RM168 million and 1QFY10's RM150 million.
This was attributed to the reversal of delinquencies that spiked upwards in 4QFY10. Credit costs amounted to only 1bps in 1QFY11, compared with 41bps in 4QFY10 and 40bps in 1QFY10. We are maintaining our overall credit cost assumption of 40bps for FY11F.
CIMB's annualised net earnings in 1QFY11 were lower than our estimate, but this was mainly due to its non-interest income segment. This was offset by low loan loss provisions. However, we expect non-interest income to pick up with realisation of the government's Economic Transformation Programme.
Key re-rating catalysts are: (i) the ability to achieve its high loans growth target of 18%; (ii) continuing improvement in current account, savings account deposit; (iii) stronger than expected non-interest income; and (iv) achievement of ROE target of 18% for FY11F. ' AmResearch, May 26
This article appeared in The Edge Financial Daily, May 27, 2011.
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