CIMB Group Holdings Bhd
(Jan 19, RM5.95)
Maintain “hold” with a lower target price (TP) of RM5.70 from RM6.45: Focus returns to the fundamentals and earnings outlook for the individual banks, now that the proposed merger of CIMB, RHB Capital Bhd (RHBCap) and Malaysia Building Society Bhd (MBSB) has been aborted.

Near-term concerns would be of higher provisioning in the fourth quarter  of 2014 (4Q14), while financial year 2015 (FY15) earnings are likely to be subdued.

In our report dated Jan 12, we stated that the sell-down on CIMB has been a function of both the merger and its poor 3Q14 results and Indonesian concerns, but probably mainly the latter.

The group’s 4Q14 results (due out before Feb 19), could still be impacted by higher provisions.

FY15 earnings, meanwhile, would likely be subdued amid weak capital markets and ongoing concerns over PT Bank CIMB Niaga Tbk.

Our FY14 and FY15 net profit forecasts are 8% and 10% lower than consensus.

With the merger off, we have reverted to valuing CIMB on a stand-alone basis.

We cut our TP to RM5.70, pegged to a new FY15 price to book value (P/BV) of 1.2 times (risk-free rate: 4.2%; cost of equity: 10.5%; growth: 8.6%).

We still prefer RHBCap for better earnings visibility and cheaper valuations — FY15 price-earnings ratio of 9.5 times (CIMB: 11 times), P/BV of one times (CIMB: 1.2 times) for a similar 10.8% return on equity. — Maybank Investment Bank Bhd, Jan 19

This article first appeared in The Edge Financial Daily, on January 20, 2015.