CIMB Group Holdings Bhd
(April 28, RM6.11)
Maintain sell with target price (TP) of RM5.70: The main takeaway from our meeting with CIMB Group Holdings’ management is that the group’s restructuring is on track and that it is currently about 40% through its RM400 million to RM600 million cost savings initiative. The restructuring of the investment banking business is about 70% to 80% complete and the balance of the cost savings will emanate predominantly from the restructuring of the group’s other businesses in Malaysia and Indonesia.
Operationally, the domestic retail business is seeing decent loan growth while corporate banking is seeing mid single-digit growth. The small and medium enterprise business will see more of a trade finance related ramp-up in Malaysia and Indonesia. There are no major asset quality issues in Malaysia and Singapore, but provision levels will remain elevated for Indonesia into the second quarter of financial year 2015, and there are pockets of stress in Thailand.
While we are positive on the group’s restructuring initiatives which will yield cost benefits in the medium term, CIMB’s short-term earnings outlook is clouded by the difficult operating environment in Indonesia, the subdued capital markets as well as the restructuring costs that will feature in the near term.
Having recently downgraded PT Bank CIMB Niaga Tbk’s FY15/FY16 net profit forecasts by 23%/11%, there is an estimated 6%/3% negative impact on CIMB Group’s earnings, for which we have factored in our TP. With return on equity’s trending around 10%, a 1.2 times FY15 price-to-book value peg seems appropriate and our RM5.70 TP stands for now. With little catalyst at this stage, our call remains a “sell”. — Maybank IB Research, April 28
This article first appeared in The Edge Financial Daily, on April 29, 2015.