CIMB Group Holdings Bhd
(Nov 19, RM6.06)
Maintain “hold” with unchanged target price (TP) of RM7.40: The group’s 7% year-on-year (y-o-y) decline in nine-month financial year 2014 (9MFY14) net profit was within our expectation (74% of full year), given that we had cut our forecasts post CIMB Niaga’s results on Oct 30. The earnings, however, were just 67% of consensus which may not have adjusted as yet.

Indonesia’s 9MFY14 pre-tax profit (PBT) dropped 36% y-o-y and in Malaysia, 9MFY14 PBT was also flat y-o-y. While consumer PBT expanded 7% y-o-y, the weak capital markets were a drag. Positively, 9M net interest margin was stable y-o-y but on the flip side, deposit growth was tepid and contributed to a higher group loan-to-deposit ratio of 93.5% as at end-September this year. Credit costs rose to 55 basis points (bps) in 3Q from 24bps in 2Q from higher coal-related non-performing loans out of Indonesia and lower bad bank recoveries domestically.

Overall, earnings forecasts are maintained but near-term risk is still to the downside, given management’s guidance of higher provisions from CIMB Niaga in 4Q.

Due diligence is currently being carried out on RHB Capital Bhd and Malaysia Building Society Bhd, and management still hopes to sign the sale and purchase agreement in January next year, with mid-2015 as the targeted completion date for the merger.

We maintain “hold” on CIMB with an unchanged TP of RM7.40 pegged to a FY15 post-merger price-to-book value of 1.3 times for a proforma return on equity of 11%. We have a “buy” on RHBCap for exposure to the merger with a TP of RM10.20, based on the 1.38 share swap ratio. — MaybankIB Research, Nov 19

This article first appeared in The Edge Financial Daily, on November 20, 2014.