Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
CIMB Group Holdings Bhd
(Aug 9, RM8.10)
Maintain buy at RM8.30 with target price of RM9.60: CIMB Niaga's 1H11 results were higher than expected due to lower provisions. We maintain our 'buy' call with an unchanged target price of RM9.60 (2.6 times 2012 price-to-book value [P/BV], 17.4% return on equity [ROE]), pending the release of its 1H results.
Uncertainty over Indonesian shareholding regulations, however, will remain a drag in the near term, as will CIMB's high foreign shareholding of 42.9% (end-June). CIMB's current share price largely reflects the possibility of lower shareholdings of'' about 40% in CIMB Niaga, we believe.
CIMB Niaga's 1H results were operationally within expectations, but where earnings surprised was in lower provisions (-45% year-on-year for 1H). While operating profit rose a modest 13% y-o-y in 1H, the lower provisions contributed to an overall 40% jump in pre-tax profit.
Against loans growth of 11% year-to-date in 1H, the management looks to sustain momentum into 2H, and with a net interest margin (NIM) target of about 5.4% to 5.5% (5.57% in 2Q). NIM improvement of six basis points (bps) quarter-on-quarter in 2Q was partly a function of declining fixed deposits. With a prevailing loan to deposit ratio of 93% and with the intention of capping this at 95% amid price competition in the industry, we would expect pressure on NIMs to prevail.
On the back of lower provisions, our net profit forecast for CIMB Niaga is raised by 8% for 2011 and 4% for 2012. At the net profit level, we expect CIMB Niaga to contribute to 25% of group earnings this year, 27% in 2012.
Despite the upgrade, 2011 CIMB Group earnings are maintained, while 2012 and 2013 earnings are trimmed by 2% on expectations that NIMs will remain under pressure. We forecast NIM compression of about 9bps this year and expect NIMs to be flat in 2012.
If CIMB has to pare its stake in CIMB Niaga from 96% to 40%, this would cut our 2012 net profit by 12% (factoring in additional interest income from sales proceeds at current price) and result in a decline in the group's ROE to 15.4% from 17.4%. Correspondingly, we estimate a downward re-rating in our target P/BV from 2.6 times to about 2.1 to 2.2 times. This, in turn, translates to potential target price of RM7.70 to RM8.10, or a prospective price-earnings ratio of 14'' to 14.7 times. ' Maybank IB Research, Aug 9
This article appeared in The Edge Financial Daily, August 10, 2011.
Company Name: CIMB GROUP HOLDINGS BERHAD
| Research House: MAYBANK | Price Call: BUY | Target Price: 9.60 |
CIMB Group Holdings Bhd
(Aug 9, RM8.10)
Maintain buy at RM8.30 with target price of RM9.60: CIMB Niaga's 1H11 results were higher than expected due to lower provisions. We maintain our 'buy' call with an unchanged target price of RM9.60 (2.6 times 2012 price-to-book value [P/BV], 17.4% return on equity [ROE]), pending the release of its 1H results.
Uncertainty over Indonesian shareholding regulations, however, will remain a drag in the near term, as will CIMB's high foreign shareholding of 42.9% (end-June). CIMB's current share price largely reflects the possibility of lower shareholdings of'' about 40% in CIMB Niaga, we believe.
CIMB Niaga's 1H results were operationally within expectations, but where earnings surprised was in lower provisions (-45% year-on-year for 1H). While operating profit rose a modest 13% y-o-y in 1H, the lower provisions contributed to an overall 40% jump in pre-tax profit.
Against loans growth of 11% year-to-date in 1H, the management looks to sustain momentum into 2H, and with a net interest margin (NIM) target of about 5.4% to 5.5% (5.57% in 2Q). NIM improvement of six basis points (bps) quarter-on-quarter in 2Q was partly a function of declining fixed deposits. With a prevailing loan to deposit ratio of 93% and with the intention of capping this at 95% amid price competition in the industry, we would expect pressure on NIMs to prevail.
On the back of lower provisions, our net profit forecast for CIMB Niaga is raised by 8% for 2011 and 4% for 2012. At the net profit level, we expect CIMB Niaga to contribute to 25% of group earnings this year, 27% in 2012.
Despite the upgrade, 2011 CIMB Group earnings are maintained, while 2012 and 2013 earnings are trimmed by 2% on expectations that NIMs will remain under pressure. We forecast NIM compression of about 9bps this year and expect NIMs to be flat in 2012.
If CIMB has to pare its stake in CIMB Niaga from 96% to 40%, this would cut our 2012 net profit by 12% (factoring in additional interest income from sales proceeds at current price) and result in a decline in the group's ROE to 15.4% from 17.4%. Correspondingly, we estimate a downward re-rating in our target P/BV from 2.6 times to about 2.1 to 2.2 times. This, in turn, translates to potential target price of RM7.70 to RM8.10, or a prospective price-earnings ratio of 14'' to 14.7 times. ' Maybank IB Research, Aug 9
This article appeared in The Edge Financial Daily, August 10, 2011.
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