Thursday, May 26, 2011

CIMB Group - Overweight. Not Changing KPIs Despite Weak 1Q

26 May 2011
Price Target: RM9.58
Share price: RM8.27


Results
1QFY11 net profit of RM916.5m (+4.4% qoq; +9.4% yoy) was 21.4% of HLIB and consensus forecasts. However, we considered this to be in line due to seasonality (1Q was 23.8% and 21.9% of FY10 and FY09 actual full year earnings). Moreover, management is not changing its FY11 KPIs in view of strong IB pipeline ahead, some IB deals have yet to filter down to in

Deviation
Largely in line.

Dividends
None.

Highlights
1QFY11 results impacted by large bond sales and redemptions as well as NIM erosion (mainly CIMB Niaga) but partly offset by low provisions.

However, consumer operations continued to show strong performance while capital markets deal pipeline is strong.

Additional buffer from RM426.3m MTM gain of AFS. We also understand that its derivatives (mainly IRS) would continue to show MTM gain in a rising rate environment.

Expect 10bps erosion in FY11 NIM. However, net interest income is expected to continue with its growth trajectory, especially in Malaysia, Thailand and Singapore.

Although loans and deposit growth are behind KPIs, it expect stronger corporate segment in 2H (when ETP financing commence) while the 16.9% yoy growth in CASA would help to mitigate NIM compression. CASA is now 34.6% of total vs. circa 28% in 2007.

Thus, although 1Q ROE as well as loans and deposits growth fell short, management is not changing its FY11 KPIs of 17% ROE, 18% loans growth and 20% deposits growth.

Asset quality continued to improve while impaired loan formation was lower qoq and yoy.

Risks
Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income if there is a slowdown in capital markets.

Forecasts
No changes.

Rating
BUY

Positives
- Proxy to economic growth and active capital markets, robust prospects of Indonesia banking industry and growing regional universal bank platform.

Negatives
- Non-interest income may fall short if capital markets soften.

Valuation
Target price maintained at RM9.58 (Gordon Growth with ROE of 18.4% and WACC of 9.7%).


Source: HLeBroking

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