PP 7767/09/2010(025354)

27 August 2010
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R esults / B rie fing Note

27 August 2010
MARKET DATELINE

CIMB Group Share Price

Fair Value
:
:
RM7.92
RM8.40
Tracking Expectations Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (CIMB; Code: 1023) Bloomberg: CIMB MK

Net EPS Net Net
FYE PBT Profit EPS Gwth PER BVPS P/Book C.EPS* DPS Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM) (x) (sen) (sen) (%) (%)
2009 (a) 3,811.9 2,806.8 39.8 37.5 19.9 2.88 2.7 - 9.3 1.2 15.0
2010 (f) 4,885.4 3,519.9 48.0 20.8 16.5 3.54 2.2 48.1 9.3 1.2 15.2
2011 (f) 5,614.4 4,124.3 56.3 17.2 14.1 3.92 2.0 56.2 9.3 1.2 15.1
2012 (f) 6,440.7 4,726.8 64.5 14.6 12.3 4.38 1.8 63.6 9.3 1.2 15.5
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 2QFY10 results in line. CIMB’s 2Q net profit of RM889m (+34.1% yoy; RHBRI Vs. Consensus
+6.1% qoq) was in line with our and consensus expectations with 1H10 Above
net profit of RM1.7bn (+35.3% yoy) accounting for 49-51% of our and In Line
consensus full-year forecasts. Below

♦ Consumer banking helped drive qoq growth. QoQ, PBT grew 5% on Issued Capital (m shares) 7,331.5
the back of stronger contribution from: 1) the consumer banking segment Market Cap (RMm) 58,065.7
Daily Trading Vol (m shs) 12.3
(+52.8% qoq) largely due to stronger recoveries for the “bad bank”; 2)
52wk Price Range (RM) 4.97 – 8.00
corporate and investment banking (+14.7% qoq); and 3) GAM &
Major Shareholders: (%)
Insurance as well as CIMB Thai. These were partly offset by weaker
Khazanah 31.1
numbers from Treasury & Investments (-18.3% qoq). NIM (ex-Islamic EPF 13.8
income) was flattish qoq (+1bps) but down 3bps yoy. Non-interest MUFJ 8.0
income was flat qoq (+3.7% yoy), helped by a RM144m gain on disposal
of fixed assets (mainly relates to sale and leaseback transaction). CIR was FYE Dec FY10 FY11 FY12
EPS chg (%) 0.5 (0.1) (1.5)
broadly stable at 55.3% (1Q10: 55.2%; 2Q09: 54.1%).
Var to Cons (%) (0.1) 0.2 1.4
♦ Loan growth momentum picked up. Gross loans grew +5.1% qoq and
PE Band Chart
+17.7% yoy (1Q10: +2.9% qoq; +13.7% yoy) underpinned by the
Malaysian consumer loans (+3.4% qoq; +15.2% yoy) and +8.9% qoq
(+30.7% yoy) expansion (in RM terms) in CIMB Niaga’s loan book. PER = 17x
PER = 14x
Mortgages, HP, working capital and purchase of fixed assets were some of PER = 11x
PER = 8x
the more significant contributors to the growth. Meanwhile, deposits grew
by 8.3% qoq and 18.1% yoy, mainly led by the growth in fixed and other
deposits. Consequently, CASA ratio fell to 30.5% (32.2% at end-1Q10).

♦ Asset quality improved. The group’s gross impaired loan ratio improved
to 7.2% from 7.5% the previous quarter but LLC fell to 78.4% from Relative Performance To FBM KLCI
80.5% as at end-1Q10. Core capital ratio for the bank was 14.5% while
on a group basis, management said the figure would have been 11.2%. CIMB Group

♦ Dividend. CIMB declared an interim single tier DPS of 4.625 sen (2Q09:
nil), half of our projected full-year net DPS of 9.3 sen, which is in line with
management’s guidance. FBM KLCI

♦ Forecasts. We fine-tune and adjust our earnings forecasts for the

recently completed acquisition of 19.67% stake in CIMB Niaga from
Khazanah. The overall impact, however, is relatively insignificant to our
net profit forecasts.
David Chong, CFA
♦ Investment case. Our fair value of RM8.40 remains unchanged and is
(603) 9280 2186
based on target CY11 PER of 15x. Outperform call maintained. david.chong@rhb.com.my
Please read important disclosures at the end of this report.

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 27 August 2010

Highlights From Analyst Briefing

♦ FY10 targets and outlook. Management guided for FY10 ROE of 16.5%, before impact from the recent 19.67%
acquisition of additional stake in CIMB Niaga from Khazanah. Meanwhile, loan loss charge (based on FRS139) was
expected to be around 40bps. Other 2010 targets remain unchanged. Management remains upbeat on its
investment banking pipeline for 2H2010 given several recent deals (e.g. privatisation of Tanjong, Parkway). As
for NIMs, management expects NIMs to remain stable ahead and still sees pressure on mortgage and HP margins.

Our FY10 ROE of 15.2% has taken into account the additional stake acquisition in CIMB Niaga while our 43bps
credit charge assumption is broadly in line with management’s guidance.

♦ Sale of bad bank status. Management has decided not to proceed with the divestment of its “bad bank”
(SEASAM) due to: 1) under the Basel II risk-based capital adequacy framework, lower loss value is estimated for
the bad bank’s portfolio as compared to the provision estimated under FRS139, thus making a sale less
economically attractive; and 2) SEASAM has made considerable progress in recoveries since acquiring the
impaired loans from CIMB Bank. Net book value of the portfolio has reduced to RM715m as at end-Jun 2010 from
RM925m as at 1 Dec 2009.

♦ Regulatory issues. Implementation of Basel II IRB approach is expected to have erode CIMB Bank’s capital ratio
by less than 100bps (vs. 100-150bps guided previously). As for Basel III, management believes better clarity on
Basel III should emerge by the end of the year. Until then, the group would remain conservative on its capital
position.

♦ 1Platform update. Management provided an update on 1Platform, a programme to be implemented in phases

over a 5-year period and is expected to cost around RM1.1bn. According to management, the key aims of the
programme are to: 1) deliver common capabilities across the group (e.g. standardising processes, implementing
shared methodologies and approaches); 2) improve competitive advantage (borderless banking agross the
region); and 3) increase operational efficiency. All these should have drive: 1) the group’s vision of a unified
multi-local bank; 2) cost efficiency; and 3) risk reduction.

♦ Others. Group CEO, Dato’ Sri Nazir Razak, also briefly mentioned his plan to take up fellowship at Oxford. While
this could see him spend some time out of the country, he stressed that he had no intention of stepping down.

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.

Forecasts

♦ Forecasts. We fine-tune and adjust our earnings forecasts for the recently completed acquisition of 19.67%
stake in CIMB Niaga from Khazanah. The overall impact, however, is relatively insignificant to our net profit
forecasts.

Valuations And Recommendation

♦ Best proxy to non-interest income growth. Our fair value of RM8.40 remains unchanged and is based on
target CY11 PER of 15x. 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.
Thus, we reiterate our Outperform call on the stock.

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 27 August 2010

Table 2 : Quarterly Results

QoQ YoY
FYE Dec (RMm) 2Q09 1Q10 2Q10 (%) (%) Comments
Net Interest Income 1,665.1 1,833.8 1,974.8 7.7 18.6 Stronger qoq and yoy driven by +5.1% qoq (+17.7%
(+ Islamic Banking) yoy) loan growth, which, in turn, came from
consumer bank (+3.4% qoq; +15.2% yoy) and CIMB
Niaga (+8.9% qoq; +30.7% yoy). Higher Islamic
banking income (+34.1% qoq; +89% yoy) also
helped contribute to the growth.

Meanwhile, NIM was up 1bps qoq but down 3bps yoy.

Non-interest Income 947.1 996.2 982.1 (1.4) 3.7 Flattish qoq with gain from disposal of fixed assets of
(+ allowance for RM143.6m (1Q10: RM13.2m) and gain from
impairment of derivatives of RM58.5m (1Q10 loss of RM277.6m)
securities) offset by lower forex gain of RM73.8m (1Q10:
RM392m) and lower trading gains (36.7m vs.
RM116.8m).

Higher yoy due to:

1. Higher net gain from derivatives (2Q09 loss of
RM143.5m);
2. Higher gains from AFS and HTM securities
(RM183.5m vs. 2Q09: RM48.7m); and
3. Gain from disposal of fixed assets.

These were partly offset by loss on trading securities

of RM26m (2Q09 gain of RM143.7m) and lower forex
gain (2Q09: RM260.6m).

Operating Income 2,612.2 2,830.1 2,956.9 4.5 13.2

Less: Overheads (1,414.0) (1,563.0) (1,634.8) 4.6 15.6 Higher qoq mainly due to higher marketing and
admin costs while yoy increase was generally all
round.
Pre-provision 1,198.2 1,267.1 1,322.1 4.3 10.3
Profit

Less: Impairment (322.3) (162.1) (153.1) (5.5) (52.5) Lower yoy due to individual allowance of RM68.7m
losses on loans, vs. 2Q09 net SP of RM365.5m, partly offset by higher
advances and portfolio allowance of RM183.5m (2Q09 GP of
financing RM31.8m).
(+ allowance for
commitments and Slightly lower qoq thanks mainly to higher
contingencies) recoveries.

Credit charge was 8bps vs. 10bps in 1Q10 and 22bps

in 2Q09.

Annualised net impaired loan formation saw an uptick

to 230bps vs. 158bps in 1Q10 (2Q09: 172bps).
Operating Profit 875.9 1,105.0 1,169.0 5.8 33.5

Associates 2.7 23.7 16.0 (32.5) >100 Mainly from Bank of Yingkou.
Pretax Profit 878.6 1,128.7 1,185.0 5.0 34.9

Less: Tax (170.7) (216.5) (237.9) 9.9 39.3

Effective Tax Rate 19.4 19.2 20.1 4.7 3.3 Lower than statutory rate mainly due to income not
(%) subjected to tax.
Profit After Tax 707.8 912.3 947.1 3.8 33.8

Minorities (44.7) (74.2) (57.6) (22.4) 29.0

Net Profit 663.2 838.1 889.5 6.1 34.1
Source: Company, RHBRI

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Table 3 : Cumulative Results

YoY
FYE Dec (RMm) 1HFY09 1HFY10 (%) Comments
Net Interest Income 3,233.0 3,808.6 17.8 Primarily driven by strong loan growth of +17.7% yoy (see Table 5 for
(+ Islamic Banking) breakdown) and +66% growth in Islamic income.

Non-interest Income 1,855.0 1,978.4 6.6 Led by:

(+ Impairment 1. Stronger forex gain (RM465m vs. 1H09: RM160m); and
losses on securities) 2. Gains from AFS and HTM security of RM475m (1H09: 80m);

partly offset by lower gains from trading securities (RM0.3m loss vs. 1H09
gain of RM173m) and loss on derivatives of RM219m vs. 1H09 gain of
RM238m.

Operating Income 5,088.0 5,787.0 13.7

Less: Overheads (2,740.6) (3,197.8) 16.7 Generally higher across the board. CIR increased further to 55.3% from
53.9%.
Pre-impairment 2,347.4 2,589.2 10.3
Profit

Less: Impairment (636.4) (315.2) (50.5) Lower due to lower individual allowance of RM102m vs. net SP of RM648.3m,
losses on loans, partly offset by higher collective allowance of RM362m vs. GP of RM92.6m.
advances and
financing Credit charge was 18bps vs. 44bps in 1H09.

Operating Profit 1,711.0 2,274.0 32.9

Associates 6.5 39.7 >100

Pretax Profit 1,717.5 2,313.7 34.7

Less: Tax (345.7) (454.3) 31.4

Effective Tax Rate 20.1 19.6 (2.4)
(%)
Net Profit 1,371.8 1,859.4 35.5
Source: Company, RHBRI

Table 4 : Ratio Analysis

FYE Dec 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Asset Quality (%)
Gross impaired loans/NPL Ratio 4.9 5.6 5.6 5.5 5.0 7.5 7.2
Net impaired loans/NPL Ratio 2.1 2.5 2.4 2.4 1.7 4.5 4.4
Individual allowance/impaired loans (SP / NPL) 58.2 57.4 58.8 58.4 66.1 42.5 41.0
Collective allowance/net loans (GP / Net Loans) 1.5 1.5 1.5 1.5 1.3 2.9 2.8
Loan Loss Coverage 88.1 83.5 84.8 84.8 90.8 80.5 78.4
Core Capital Ratio 11.4 11.1 12.1 12.6 13.0 12.4 0.0
RWCAR 14.5 13.6 13.9 14.1 14.4 14.0 0.0

Margins (%)
Yields On Earning Assets 5.84 5.65 5.08 5.19 4.87 4.69 4.89
Avg. Cost of Funds 3.14 2.86 2.22 2.18 2.03 1.88 2.08
Interest Spread 2.70 2.79 2.86 3.01 2.84 2.81 2.81
Net Interest Margins (ex-Islamic Inc) 2.85 2.91 2.96 3.13 2.96 2.92 2.93
Adjusted Net Interest Margins (+ Islamic Inc) 3.14 3.25 3.29 3.56 3.45 3.34 3.48

Profitability (%)
ROE 7.7 14.4 15.1 15.4 16.2 16.4 17.2
ROA 0.64 1.14 1.18 1.28 1.37 1.38 1.42
Cost / Income Ratio 57.0 53.6 54.1 51.6 56.7 55.2 55.3
Expenses / Avg. Assets 2.2 2.4 2.5 2.5 2.6 2.6 2.6
Provisions / Avg. Net Loans 1.2 1.0 1.0 1.1 0.3 0.5 0.4

Liquidity (%)
Loan Deposit Ratio 79.9 76.9 79.4 82.1 79.5 80.6 78.6
Net Loan Growth (qoq) 10.1 9.6 1.1 4.9 4.0 3.1 5.4
Deposit Growth (qoq) 3.5 14.0 (2.1) 1.4 7.7 (0.1) 8.3
Source: Company, RHBRI

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Table 5 : Gross Loan Book Breakdown

FYE Dec 2Q09 3Q09 4Q09 1Q10 2Q10 qoq (%) yoy (%)
Purchase of securities 10,518.4 8,255.1 9,645.4 9,010.9 7,724.4 (14.3) (26.6)
Purchase of transport vehicles 14,722.0 14,651.7 14,964.3 15,733.0 16,564.5 5.3 12.5
Purchase of residential property 31,930.2 34,435.9 35,405.1 37,761.5 39,533.7 4.7 23.8
Purchase of non-residential property 9,606.7 9,594.4 9,788.0 10,337.4 11,002.3 6.4 14.5
Purchased of fixed assets 4,822.7 5,274.3 5,444.0 4,353.0 9,066.8 108.3 88.0
Personal uses 4,443.7 4,458.4 4,669.2 4,775.1 4,933.1 3.3 11.0
Credit cards 3,107.3 3,253.8 3,551.9 3,922.1 4,258.1 8.6 37.0
Purchase of consumer durable goods 14.1 12.7 4.1 3.5 3.2 (8.6) (77.4)
Construction 4,440.1 4,520.8 4,651.5 4,678.4 4,293.7 (8.2) (3.3)
Working capital 39,371.4 42,710.2 43,956.1 44,491.7 46,418.6 4.3 17.9
Other purpose 13,794.0 16,025.5 16,825.4 18,146.2 17,243.6 (5.0) 25.0
Total 136,770.5 143,192.8 148,905.0 153,212.6 161,042.0 5.1 17.7
Source: Company, RHBRI

Table 6 : Impaired Loans/NPLs By Sector

FYE Dec Gross Impaired Loans/NPLs (RMm) Gross Impaired Loans/NPL Ratio (%)
Sep 09 Dec 09 Mar 10 Jun 10 Sep 09 Dec 09 Mar 10 Jun 10
Purchase of securities 67.1 63.5 469.1 139.6 0.8 0.7 5.2 1.8
Purchase of transport vehicles 367.6 371.5 416.1 345.3 2.5 2.5 2.6 2.1
Purchase of residential property 1,729.2 1,687.7 2,013.0 1,993.4 5.0 4.8 5.3 5.0
Purchase of non-residential property 415.4 373.2 464.3 443.3 4.3 3.8 4.5 4.0
Purchased of fixed assets 143.1 139.4 168.4 252.7 2.7 2.6 3.9 2.8
Personal uses 308.6 274.0 338.2 412.1 6.9 5.9 7.1 8.4
Credit cards 73.9 82.0 85.4 78.8 2.3 2.3 2.2 1.8
Purchase of consumer durable goods 0.9 0.6 15.1 0.8 6.8 15.0 433.0 24.2
Construction 528.5 417.5 1,565.7 1,531.2 11.7 9.0 33.5 35.7
Working capital 3,376.0 3,123.0 4,795.6 5,376.9 7.9 7.1 10.8 11.6
Other purpose 857.4 884.4 1,170.4 1,046.6 5.4 5.3 6.4 6.1
Total 7,867.6 7,416.8 11,501.2 11,620.6 5.49 4.98 7.51 7.22
Source: Company, RHBRI

Table 7 : Earnings Forecasts Table 8 : Ratio Analysis & Forecast Assumptions

FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F
Net Interest Income 6,876.0 7,821.0 8,536.6 9,409.5 Asset Quality (%)
(+ Islamic Banking) Gross impaired loans ratio 7.0 6.5 6.0
Non-interest Income 3,716.8 3,989.3 4,308.4 4,654.1 Net impaired loans ratio 4.15 4.00 3.69
Operating Income 10,592.7 11,810.2 12,845.0 14,063.6 Ind. allow / Impaired loans 42.5 40.0 40.0
Collective allow. / Net Loans 2.6 2.4 2.2
Less: Overhead Loan Loss Coverage 78.2 76.2 75.8
Expenses (5,717.6) (6,289.4) (6,603.9) (6,933.1) Core Capital Ratio 12.1 11.7 11.5
Pre-provision RWCAR 14.6 13.8 13.3
Profit 4,875.1 5,520.8 6,241.2 7,130.6 Margins (%)
Yields On Earnings Assets 5.25 5.23 5.21
Less: Loan Loss Avg. Cost Of Funds 2.35 2.35 2.35
Provisions (1,097.3) (675.5) (668.7) (733.9) Interest Spread 2.90 2.88 2.86
Operating Profit 3,777.8 4,845.4 5,572.4 6,396.6 Un-adj NIM (ex-Islamic Inc) 3.01 2.98 2.98
Adjusted NIM (+Islamic Inc) 3.41 3.38 3.38
Associates 34.0 40.0 42.0 44.1 Profitability (%)
Pretax Profit 3,811.9 4,885.4 5,614.4 6,440.7 ROE 15.2 15.1 15.5
ROA 1.37 1.45 1.52
Less: Tax (764.8) (1,221.3) (1,403.6) (1,610.2) Cost / Income Ratio 53.25 51.41 49.30
Effective Tax Rate 20.1 25.0 25.0 25.0 Expenses / Avg. Assets 2.45 2.31 2.23
(%) Provisions / Avg. Net Loans 0.45 0.41 0.41
Profit After Tax 3,047.1 3,664.0 4,210.8 4,830.6 Liquidity (%)
Loan Deposit Ratio 75.3 75.0 73.9
Minorities (240.3) (144.2) (86.5) (103.8) Net / Gross Loan Growth 10.3 9.4 8.2
Net Profit 2,806.8 3,519.9 4,124.3 4,726.8 Deposit Growth 15.0 10.0 10.0
Source: Company data, RHBRI estimates Source: RHBRI estimates

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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.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM 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 FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM 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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