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.

Greek Government Bonds Maturing over 2010-2012

Date                  term                  rate                 amount (EUR BLN)
19/5/2010          10-years             6%                 8.5
20/5/2011            3-years            3.8%               8.6
18/5/2011           10-years           5.35%             6.6
20/8/2011            5-years            3.90%             6.8
20/3/2012            5-years            4.30%             14.5
18/5/2012            5-years            5.25%              8.1
20/8/2012            5-years            4.10%              7.8
Total                                                                   60.9


Be careful on these dates. It could be big downtrend.

IOICORP : Slow Growth, but Trading at Premium?

Despite the recent selldown, we think IOI Corp is still pricey at 20x forward earnings, which we think is at the top end of the PE range in a post-bubble environment. This is despite IOI Corp being the world’s most profitable planter, generating USD2255 per mature hectare. For exposure to integrated planters, we prefer Singapore-listed Wilmar International (Neutral TP SGD7.00), which is larger and yet cheaper than IOI. Investors betting on a rebound in palm oil price should buy an inexpensively valued, upstream heavy player such as Golden Agri (Trading Buy, TP SGD0.635), the stock price of which tends to react better to an upswing in palm oil price.

Malaysia : Majority Plantation Stocks very expensive.
Singapore/Indonesia :  Majority Plantation Stocks in Indonesia trading at cheap valuation.

Recommendation:-
Underweight Malaysia Plantation, Focus on Indonesia Planter...It could give you better return in long run.