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CIMB Group Holdings

CIMB Group Holdings

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Published by: bi11y on Aug 31, 2010
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Asia Pacific Equity Research
27 August 2010
CIMB Group Holdings
Neutral
CIMB.KL, CIMB MK
1H10 results: Within expectations; managementtweaks ROE guidance upwards to 16.5%
Price: M$7.92
Price Target: M$7.50
MalaysiaBanksChris Oh, CFA
AC
(60-3) 2270-4728chris.ch.oh@jpmorgan.comJPMorgan Securities (Malaysia) Sdn. Bhd.(18146-X)
4.56.07.5M$
 Aug-09Nov-09Feb-10May-10Aug-10
 
Price Performance
CIMB.KL share price (M$)FBMKLCI (rebased)
YTD1m3m12mAbs 23.4%5.6%19.1%52.9%Rel 12.8%1.4%6.4%32.8%
 
See page 7 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm mayhave a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factorin making their investment decision.
Company data
52-wk Range M$4.975-8Mkt Cap (M$MM) 58065.7Mkt Cap (US$MM) 18475.8Share Outstanding(MM) 7331.5Free Float (%) 54.5Avg. daily volume(MM) 9.7Liquidity(MM) 65.2Exchange rate 3.1Index 1408.0Year-end 12/200952-wk Range M$4.975-8
Source: Bloomberg
Valuations
2010E 2011E
Old EPS (M¢) 49.3 58.7New EPS (M¢) 49.3 58.7% change 0.0 0.0P/E (x) 16.1 13.5ROE (%) 16.4 17.7P/B (x) 2.5 2.3Dec 10 PT 7.50
Source: J.P. Morgan estimates
 
Within expectations.
CIMB reported 2Q10 net profit of M$889.5M(+6.1% Q/Q) and 1H10 of M$1.727B (+35.2% Y/Y) and 49% of JPM fullyear forecast and consensus estimates. CIMB declared an interim netdividend of 4.625 sen (50% of full year guidance).
 
Outlook – upward tweak to ROE guidance.
NIMs are again comingunder some pressure as competitive pressure is now threatening to break the “rationale pricing” industry trend on HP and mortgages that have heldsteady over the past 6 to 9 months. Despite this, expectations for 2010 arefor NIMs to hold stable as gains from lag deposit repricing (due to interestrate hikes) should offset competitive margin pressure. Overall,management remains positive on 2HFY10 outlook as pipeline of corporate activity remains strong whilst the consumer business isexperiencing growing momentum. Management has revised up guidancefrom 16% ROE for FY10 to 16.5% (which excludes the dilution impact of the 20% CIMB Niaga acquisition which would bring the ROE down to16.1%). Implementation of Basel 2 will be effective from 1 July 2010 andguidance is now for RWCR not to fall by more than 100bps vs 100-150bps previously. Also, with Basel 2 giving some capital relief for itsbad assets, CIMB is no longer planning on divesting SEASAM (the badbank).
 
No change to earnings.
With earnings guidance remaining relativelyunchanged, we maintain our existing forecast for FY10/FY11 and expectthe street to also keep earnings relatively unchanged. While there is still anupward bias to the numbers should corporate activity and capital marketsremain robust in 2H, the downside risk is mainly on concern that thedeveloped economies could see a faster downshift in growth than expecteddampening domestic sentiment and market activity.
 
We maintain our PT of M$7.50 and our Neutral rating
. Our PT isbased on a two stage DDM based on a peak ROE of 19%, longer termgrowth rate of 7.3% and COE of 11.9%. As foreign investors return toMalaysia looking for refuge from global market volatility, there is upsiderisk that CIMB’s share price overshoots our PT on the upside as CIMB isperceived to be a liquid proxy for the Malaysian reform story. The key risk on the downside is that capital market activity could slow on externaluncertainties and thus crimping CIMB's earnings outlook.
 
CIMB Group (CIMB MK; CIMB.KL)
M$ millions (per sh. data in M$) 2Q10 2Q09 % Y/Y 1Q10 % Q/Q
Net interest margins 2.79% 2.85% 2.77%Cost income ratio 54.16% 54.61% 55.00%Gross NPL 7.2% 5.6% 7.5%Operating income 3018.8 2589.2 17% 2841.8 6%Pre-provisioning profit 1383.9 1175.2 18% 1278.9 8%Net profit 889.5 663.2 34% 838.1 6%EPS (M¢) 12.6 9.4 34% 23.7 -47%
Source: Company
 
 2
Asia Pacific Equity Research
27 August 2010Chris Oh, CFA(60-3) 2270-4728chris.ch.oh@jpmorgan.com
Table 1: CIMB - Quarterly results summary
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 1H09 1H10
Net interest income 1407.0 1501.9 1595.1 1568.8 1603.8 1666.2 2909.0 3270.0Non-interest income 945.7 924.0 969.3 950.7 1008.0 1036.9 1869.7 2044.9Operating income 2513.6 2589.2 2787.0 2779.7 2841.8 3018.8 5102.8 5860.6Staff costs and overheads -1326.6 -1414.0 -1439.2 -1537.8 -1563.0 -1634.8 -2740.6 -3197.8Profit before provisions 1187.0 1175.2 1347.8 1242.0 1278.9 1383.9 2362.2 2662.8Loan Provisions -271.6 -302.3 -245.5 -203.1 -149.8 -122.4 -573.9 -272.2Op Profit 835.1 875.9 980.4 1086.5 1105.0 1169.0 1711.0 2274.0Associates 3.8 2.7 20.4 7.2 23.7 16.0 6.5 39.7Pretax Profit 838.9 878.6 1000.8 1093.6 1128.7 1185.0 1717.5 2313.7Taxation -175.0 -170.7 -219.1 -200.0 -216.5 -237.9 -345.7 -454.3PAT before Minorities 664.0 707.8 781.7 893.6 912.3 947.1 1371.8 1859.4Minorities -50.0 -44.7 -54.8 -90.7 -74.2 -57.6 -94.7 -131.8Profit attributable to shareholders 613.9 663.2 726.8 802.9 838.1 889.5 1277.1 1727.5
Source: Company
Table 2: CIMB - key ratios
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 1H09 1H10
ROE 14.8% 15.2% 16.0% 16.6% 16.7% 17.3% 14.6% 16.8%ROA 1.2% 1.2% 1.3% 1.4% 1.4% 1.4% 1.2% 1.4%NIM 2.79% 2.85% 2.93% 2.83% 2.79% 2.79% 2.76% 2.74%Cost/Income Ratio 52.8% 54.6% 51.6% 55.3% 55.0% 54.2% 53.7% 54.6%Gross NPL % 5.59% 5.63% 5.49% 4.98% 7.51% 7.22%Loan Loss Coverage 83.5% 86.8% 86.7% 90.8% 80.5% 78.4%
Source: Company
Table 3: CIMB - Breakdown of operating revenue broken down by business segment
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Consumer banking 820 837 869 886 869 890 899 934 877 966Corporate & investment banking 477 476 360 331 345 403 393 555 435 391- which includes net trading income 110 38 8 12 8 45 21 18 20 25Treasury & investments 402 458 106 274 464 372 451 294 448 540- which includes net trading income 127 228 -170 72 314 157 89 63 170 148GAM & insurance 53 69 40 0 69 85 92 65 53 89Bank Niaga 285 289 293 465 510 662 740 775 715 800Bank Thai - - - - 158 177 212 157 186 182Other income -18 11 15 -36 - - -Total operating revenue 2,019 2,140 1,683 1,920 2,415 2,589 2,787 2,780 2,841 3,019
Source: Company
 
 3
Asia Pacific Equity Research
27 August 2010Chris Oh, CFA(60-3) 2270-4728chris.ch.oh@jpmorgan.com
Table 4: CIMB - Net interest income analysis
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10Interest Income
Loan and advances 1,578 1,593 1,733 2,019 2,107 2,022 2,075 2,049 2,087 2,203Recoveries from NPLs 107 97 90 89 65 67 58 64 25 65Interbank 264 231 196 133 76 71 105 73 79 86Others 337 315 327 346 439 428 379 369 347 373Interest suspended -56 -46 -44 -49 -43 -45 -29 -31 0 0Amortisation of premium less accretion of discount 22 2 40 47 45 31 31 28 40 48
Total
2,308 2,238 2,386 2,634 2,731 2,619 2,647 2,583 2,577 2,775Loans 95,846 103,229 106,572 117,382 128,663 130,051 136,467 142,218 153,213 161,042
Interest Expense
Customer deposits 882 875 974 1,074 947 910 859 855 794 913Interbank 120 90 60 44 142 17 21 21 16 18Subordinated bonds 72 58 65 82 91 78 70 64 65 65Others 120 131 138 148 144 112 103 74 98 113
Total
1,194 1,155 1,238 1,348 1,324 1,117 1,052 1,015 973 1,109Customer deposits 131,602 136,842 141,954 153,425 167,394 163,847 166,155 178,882 178,731 193,487Net interest income- Total 1,113.7 1,083.1 1,148.5 1,285.7 1,407.0 1,501.9 1,595.1 1,568.8 1,603.8 1,666.2- Loans (incl. NPLs and ISS) less deposits 802.2 814.6 849.2 1,034.0 1,224.9 1,179.7 1,274.0 1,258.7 1,317.3 1,355.4NIM on Loan base- Total 4.65% 4.35% 4.38% 4.59% 4.57% 4.64% 4.84% 4.50% 4.34% 4.24%- Loans (incl. NPLs and ISS) less deposits 3.35% 3.27% 3.24% 3.69% 3.98% 3.65% 3.87% 3.61% 3.57% 3.45%LD ratio 73% 75% 75% 77% 77% 79% 82% 80% 86% 83%
Source: Company
Table 5: CIMB – loan breakdown by sector (since 1Q09 includes consolidation of Bank Thai)
2Q10 2Q09 Y/Y 1Q10 Q/Q
Construction 4,294 4,440 -3.3% 4,678 -8.2%Purchase of landed property- Residential 39,534 31,930 23.8% 37,762 4.7%- Non-residential 11,002 9,607 14.5% 10,337 6.4%Purchase of fixed assets other than land & building 9,067 4,823 88.0% 4,353 108.3%Merger and acquisition 1,852 1,815 2.1% 1,631 13.6%Personal uses 4,933 4,444 11.0% 4,775 3.3%Credit card 4,258 3,107 37.0% 3,922 8.6%Purchase of consumer durables 3 14 -77.4% 3 -8.6%Purchase of securities 7,724 10,518 -26.6% 9,011 -14.3%Purchase of transport vehicles 16,565 14,722 12.5% 15,733 5.3%Working capital 46,419 39,371 17.9% 44,492 4.3%Others 15,391 11,979 28.5% 16,515 -6.8%161,042 136,771 17.7% 153,213 5.1%
Source: Company

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