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CIMB Group Holdings Bhd
(Mar 2, RM5.95)

Maintained hold call with a lower target price (TP) of RM6: Following the (forecast) earnings cut, our TP is correspondingly lowered to RM6 based on the Gordon Growth Model (12% return on equity; 5% growth; 10.3% cost of equity) implying 1.3 times forecast financial year ending Dec 31, 2015 (FY15F), price-to-book value. Deliveries of its T18 strategies would be a rerating catalyst.

Fourth quarter ended Dec 31, 2014 (4QFY14), earnings were only RM200 million, dragged mainly by higher provisions from its Indonesian (coal and coal-related sectors) and Malaysian (a large legacy corporate account) portfolios. 

There was a goodwill impairment of RM128 million from its investment banking business booked. Its wholesale banking division was loss-making in 4QFY14. 

Loan and deposit growth soared 6% and 7% quarter-on-quarter (q-o-q) respectively, while net interest margin (NIM) was flat. 

Expenses were higher q-o-q on seasonally higher personnel cost accruals. The last time CIMB recorded a quarterly net profit below RM200 million was in 4QFY05, also provision-related.

FY14 net profit at only RM3.1 billion has been the lowest in the last five years on weaker non-interest income and substantially higher provisions. 

Consumer banking did well regionally but its wholesale banking division saw profits slump by 41% year-on-year. 

The final dividend per share (DPS) of five sen was declared, bringing full-year DPS to 15 sen, equivalent to a 40% payout.

Provisions are expected to be high in 1QFY15, mainly from Indonesia, and should normalise after that. 

Cost management would be a key item to watch in FY15F, with an estimated RM400 million to RM600 million to be incurred from the business and headcount rationalisation. 

Other T18 revenue drivers are unlikely to be delivered in FY15F in our view as execution has just begun. 

On a business-as-usual basis, NIM is likely to remain under pressure while non-interest income should improve but with sluggish growth on soft capital markets. 

All in, we cut FY15F/FY16F earnings by 8% to 13% after imputing higher expenses mainly related to restructuring costs. We have not imputed any revenue accretions from the T18 strategy in our forecasts. — AllianceDBS Research, March 2

CIMB_030315

 

This article first appeared in The Edge Financial Daily, on March 3, 2015.

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