Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Company Name: CIMB GROUP HOLDINGS BERHAD
| Research House: KENANGA | Price Call: HOLD | Target Price: 7.90 |
We still believe that investors should buy CIMB on dips andto position for the next recovery cycle. Recent media reports have suggestedthat CIMB Group Berhad (CIMB) could acquire a 60% stake in Bank of Commerce inPhilippines at an undemanding valuation and 100% in RBS's Asia Assets at adiscount. CIMB has made no officialcomment but we believe that it has started to position itself for the nextrecovery cycle. While we are maintainingour MARKET PERFORM rating and our Target Price of RM7.90 at this juncture, westill believe investors should buy the stock on any dips to position for thenext recovery cycle. We believe thatCIMB could potentially offer a low-risk trading opportunity over the next 2-3months on the back of its satisfactory FY11 result.
Rationale behind theacquisition: CIMB has identified Philippinesas one of its priority markets and we believe it is considering acquiring astake in Bank of Commerce given (1) Philippines's importance in completing itsAsean aspiration; (2) for better growth opportunities here and (3) BOC'sfull-fledged banking business model is in line with its targeted strategy.Meanwhile, we believe CIMB may be interested in acquiring RBS's assets in Asia given(1) the leverage on a recovering local equity market; (2) giving its regionalambitions a shot in the arm and (3) the attractive discount price.
Risk of lower growthin CIMB Niaga. Bank Indonesia has imposednew higher minimum LTVs on the industry here. Niaga's exposure in mortgage& auto loans account for 17.5% of its total loans, which in turn accountfor approximately 5% of the entire total loans for CIMB Group. Hence, theimpact could be minimal in terms of growth for the group for now. As for CIMBNiaga growth rate, we are currently forecasting high teens growth for its totalloan growth in 2012 as per the guidance of management (vs. FY11's 20%). However, with the new rules imposed, weexpect its growth will now be slower. Currently, we are estimating 13% growthfor the entire group but should these rules lower Niaga's growth by 1%, the group's loan growth will be lower by29bps.
Growth aside, we also believe that Niaga's interest marginsare expected to be under renewed pressure in FY12 through a combination of theCentral Bank policy action and as well as a heightened deposit and loancompetition. We reckon that a 50bps-70bpsdecline in its NIMs (to 4.9%-5.1%) is not entirely impossible.
Valuation and Rating.CIMB's share price has dropped by 22% since its peak on concerns over itsearnings slowing down. The stock is now trading at 12.3x FY12 EPS (with anestimated ROE of 16.4%) as compared to its 10-year historical mean of 16.5x andmarginally below its low in 2009 of 12.6x. At its current valuation, we believethe market could have priced in the risk of its slowing earnings growthalready.
Source: Kenanga
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