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21 May 2010
R e su l ts / Bri e fi ng No t e
21 May 2010
MARKET DATELINE
♦ Gross loans expanded by 13.7% yoy (+2.9% qoq), underpinned by FYE Dec FY10 FY11 FY12
the Malaysian consumer loans (+15.6% yoy) and +31.7% yoy expansion EPS chg (%) - - -
(in RM terms) in CIMB Niaga’s loan book. Mortgages, working capital, Var to Cons (%) (1.9) (2.2) 0.3
credit cards and purchase of fixed assets were some of the more
significant contributors to the yoy growth. Meanwhile, deposits grew by PE Band Chart
6.8% yoy (flat qoq) with CASA ratio up to 32.2% (4Q09: 31.7%; 1Q09:
28.7%). PER = 17x
PER = 14x
♦ Asset quality reflects adoption of FRS139. CIMB’s has fully adopted PER
PER
=
=
11x
8x
FRS139 from 1 Jan 2010. Consequently, the gross impaired loans ratio as
at end-Mar’10 stood at 7.5%, as compared to the gross NPL ratio of 5%
as at end-Dec’09 (1 Jan 2010: 7.6%). While the 31 Mar/1 Jan ratios are
not strictly comparable to that of 31 Dec due to FRS139, nevertheless,
management expects the ratio to fall to around 4-5% once the sale of the
bad bank is completed. Allowance coverage/LLC stood at 80.5% as at
end-1Q10 (4Q09: 90.8%; 1Q09: 85.6%) as the adoption of FRS139 led Relative Performance To FBM KLCI
to the restatement of opening balances for individual and portfolio
impairment allowances of RM5.2bn and RM4.1bn respectively (vs. SP and CIMB Group
GP balances of RM4.9bn and RM1.8bn respectively as at end-Dec ’09).
Opening retained earnings was restated downwards by RM594m.
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♦ FRS139 – impaired loans expected incoming quarters. Apart from the sale of the bad bank mentioned
above (CIMB is working towards completing the sale this year), loans that are restructured would also be
removed from being classified as impaired loans. Management expects these two factors would help see the
absolute amount and ratio improve in the coming quarters. In addition, 1Q10 loan loss charge was 10bps (40bps
annualised), which was lower than management’s FY10 KPI of 60bps.
♦ FY10 KPIs – Potential upward revision for ROE. While the annualised gross loans and CASA growth of 6.5%
and 7% respectively were below the targets of 12% and 18% respectively, management is keeping its targets
unchanged for now given that this is just 1Q. However, annualised ROE was 16.5%, i.e. above the 16% target,
and management sees room for this to be raised as loan loss charge could now be lower than expected.
♦ Proposed dual-listing in Thailand. Management is monitoring the situation there and while the plan remains
unchanged for now, management said that they were not going to rush the listing.
Risks
♦ Risks to our view. The risks include: 1) slower-than-expected loan growth; 2) deterioration in asset quality; 3)
changes in market conditions that may adversely affect investment portfolios and capital market related income;
and 4) forex fluctuation of its foreign subsidiaries.
♦ Mitigating factors. The mitigating factors are: 1) consumer banking transformation gaining traction; 2) asset
quality has never been better, thus, ample room to cushion potential rise in NPLs if economic growth slows
significantly; 3) recovery and robust outlook of the capital markets; 4) excellent assets and liabilities
management track record; and 5) huge growth potential from Indonesia and Thailand.
♦ Earnings assumptions. Our earnings assumptions are based on 10% loan growth for FY10 and 8-9% p.a. in
FY11-12 given that the rejuvenated consumer bank is gaining traction and both CIMB Niaga and CIMB Thai are
ready to be more aggressive in the market, post transformation. NIMs are expected to remain stable as
competitive pressures would be mitigated by the recent hikes in OPR as well as focus on higher yielding products
in overseas markets in view of the revival in the capital markets. Although LLP in FY10 is expected to be flattish,
this was due to the GP write back in 4QFY09 as credit charge is expected to improve yoy on the back of
improving asset quality.
♦ Best proxy to non-interest income growth. We remain upbeat on the group’s earnings prospects as its
domestic growth engine remains intact while it is well-poised to scale up its presence in regional markets, post
transformation. In addition, we believe the group is the best proxy to ride on the expected strong non-interest
income growth ahead given its strong franchise, capabilities and regional platform that could offer multiple local
currency related deals. Moreover, negotiations to sell its bad bank would be positive for both asset quality as well
as profitability (release of capital for more productive utilisation). Thus, we reiterate our Outperform call. Fair
value of RM8.12 (adjusted for bonus issue) is based on 17x CY10 EPS.
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Non-interest Income 907.9 883.4 996.2 12.8 9.7 Higher yoy and qoq mainly due to gain from sale of
(+ allowance for AFS securities of RM216m (4Q09: RM74m; 1Q09:
impairment of RM30m) and forex gain of RM391m (4Q09: RM79m;
securities) 1Q09: RM101m loss), partly offset by losses from
derivatives of RM277m (4Q09: RM50m loss; 1Q09:
RM382m gain).
Operating Income 2,475.8 2,712.5 2,830.1 4.3 14.3
Less: Overheads (1,326.6) (1,537.8) (1,563.0) 1.6 17.8 Higher mainly from personnel, establishment and
marketing costs.
Pre-provision 1,149.2 1,174.7 1,267.1 7.9 10.3
Profit
Less: Impairment (314.1) (88.2) (162.1) 83.7 (48.4) Lower yoy due to individual allowance of RM33.6m
losses on loans, vs. 1Q09 specific provision of RM367m, partly offset
advances and by higher portfolio allowance of RM179m (1Q09 GP
financing of RM61m).
(+ allowance for
commitments and Higher qoq due to higher portfolio allowance and
contingencies) lower allowance written back and bad debts
recovered.
Associates 3.8 7.2 23.7 >100 >100 Mainly from Bank of Yingkou.
Pretax Profit 838.9 1,093.6 1,128.7 3.2 34.5
Page 3 of 5
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Margins (%)
Yields On Earning Assets 5.43 5.84 5.65 5.17 5.19 4.87 4.69
Avg. Cost of Funds 2.99 3.14 2.86 2.31 2.18 2.03 1.88
Interest Spread 2.45 2.70 2.79 2.86 3.01 2.84 2.81
Net Interest Margins (ex-Islamic Inc) 2.61 2.85 2.91 2.96 3.13 2.96 2.92
Adjusted Net Interest Margins (+ Islamic Inc) 2.82 3.14 3.25 3.29 3.56 3.45 3.34
Profitability (%)
ROE 11.4 7.7 14.4 15.1 15.4 16.2 16.4
ROA 0.93 0.64 1.14 1.18 1.28 1.37 1.38
Cost / Income Ratio 55.3 57.0 53.6 54.1 51.6 56.7 55.2
Expenses / Avg. Assets 1.92 2.18 2.45 2.50 2.54 2.62 2.57
Provisions / Avg. Net Loans 0.69 1.21 1.02 1.00 1.11 0.25 0.45
Liquidity (%)
Loan Deposit Ratio 75.1 79.9 76.9 79.4 82.1 79.5 80.6
Net Loan Growth (qoq) 3.2 10.1 9.6 1.1 4.9 4.0 3.1
Deposit Growth (qoq) 3.7 3.5 14.0 (2.1) 1.4 7.7 (0.1)
Source: Company, RHBRI
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IMPORTANT DISCLOSURES
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may
from time to time have an interest in the securities mentioned by this report.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy
will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for
any loss or damage arising out of the use of all or any part of this report.
RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group
may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans
of any company that may be involved in this transaction.
“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.
This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.
The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Stock Ratings
Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.
Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher
risks.
Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.
Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.
Industry/Sector Ratings
Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.
This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.
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