Friday, May 21, 2010

CIMB.KL - 1Q10 Results, Within Expectations

Reiterate Buy, TP RM8.00 — Maintaining Buy/Low Risk (1L) rating on CIMB Group Holdings. Our target price of RM8.00 values the stock at 2.5x FY10E P/B (midcycle: 1.8x). Although loan and CASA growth are behind targets, management believes momentum will improve in coming quarters. Management guided that lower than expected credit cost (60bps target) and strong IB pipeline provide room for positive revision in ROE target of 16% after 2Q10 results.

1Q10 earnings +4.4% QoQ, +36.5% YoY — Net profit of RM838m in 1QFY10, accounted for 24% of our full-year forecast of RM3.47bn and 25% of consensus RM3.35bn. ROAE was 16.4%, ROAA 1.38% and BV/share RM2.92 (adjusted for Bonus Issue) as of 1Q10.

Earnings drivers — The YoY improvement in earnings came mainly from: (1) Corporate & IB +103% YoY to RM236m due to more buoyant capital market; CIMB Niaga +265% YoY to RM423m on strong operational growth and gains from sale of

AFS bonds; and (3) Consumer Banking +9.5% YoY to RM127m. But Treasury & Investments -30% YoY to RM333m due to lower investment gains. On QoQ comparison, CIMB Niaga was main profit driver +85% QoQ, but Consumer Banking -55.6% QoQ as there was a RM110m GP write-back in 4Q09.

Loan and deposit growth — Gross loans +12% YoY (adjusted for FRS139) with Malaysian consumer loans +15.6% YoY while CIMB Niaga +32% YoY (RM terms). Deposits +6.8% YoY lifted by CASA growth of 20% YoY. CASA ratio 32.2% vs. 31.7% in Dec 09 and 28.7% in Mar 09.

FRS139 impact — Gross impaired loans +55% to RM11.5bn under FRS139, resulting in gross impairment ratio of 7.5% (1 Jan 10: 7.6%). Allowance for impairment losses +37% to RM9.26bn with impairment allowance coverage of 80.5% (1 Jan 10: 80.6%). Credit cost improved to 40bps vs. 56bps in 4Q09.

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