28 Apr 2015 | Corporate Update
Maintain NEUTRAL
CIMB Group Holdings Bhd
To incur restructuring cost in FY15
Unchanged Target Price (TP): RM6.20
INVESTMENT HIGHLIGHTS
Provisioning for loan impairment by CIMB Niaga (Niaga)
will remain elevated in 2QFY15.
RETURN STATS
Price (27 Apr 2015)
RM6.11
Target Price
RM6.20
Expected Share Price
Return
+1.5%
NIM pressure to persist for both CIMB Niaga and Thai.
Expected Dividend Yield
+3.1%
At Group level, equity business is still slow while fixed
income and FX business have improved.
Expected Total Return
+4.6%
Niaga needs to comply with public shareholding spread
requirement of 7.5% in 2016.
Net profit forecasts for FY15 and FY16 lowered by 4.1%
and 1.6% respectively.
Maintain NEUTRAL with unchanged TP of RM6.20 on the
stock.
STOCK INFO
KLCI
Bursa / Bloomberg
Board / Sector
1,859.58
1023 / CIMB MK
Main / Finance
Syariah Compliant
No
High provisioning a dampener to Niaga’s earnings in 1HFY15.
Issued shares (mil)
8,423.70
We met Shahnaz Jammal, Group Chief Financial Officer for a meeting.
Par Value (RM)
Management reiterated that provisioning for loan losses by Niaga will
Market cap. (RM’m)
remain elevated in 2QFY15 due to impairments of coal and coal related
loans. The high provisions in 1HFY15 will be a dampener to Niaga’s
1.0
51.469.10
Price over NA
1.4x
earnings. Nevertheless, there are no new loan segments that warrants
52-wk price Range
RM5.05 –
RM7.53
as high provisioning as the coal sector moving ahead. Arising from that,
Beta (against KLCI)
1.25
the financial performance of Niaga is likely to turn better beyond
3-mth Avg Daily Vol
8.27m
2QFY15. Management aims to achieve ROE in the mid-teens for Niaga
3-mth Avg Daily Value
in FY15 which we see as a challenging target. This is in view of Niaga’s
intentional strategy to shift its loan mix more towards high quality
credits in the form of working capital to the commercial/corporate
segment as well as loans to the SME which are competitive in
RM49.12m
Major Shareholders
Khazanah
29.31%
EPF
16.45%
Indonesia. These credits will be lower in yields and will compress
Niaga’s NIM moving forward. Also, this strategy is likely to result in a
lower loan growth for Niaga.
Some banking abbreviations used in this
report:
No material concerns on asset quality of Niaga’s micro finance
CI = Cost-Income Ratio
GIL = Gross Impaired Loan
LDR = Loan-Deposit Ratio
NII = Net Interest Income
NOII = Non-interest income
NIM = Net Interest margin
CASA = Current and Savings Accounts
COF = Cost of Funds
PPOP = Pre Provision Operating Profit
OPEX = Operating Expenses
loans which have grown significantly. For Niaga, micro financing
has grown significantly to IDR3.15t in outstanding as at end of 1QFY15
representing circa 1.8% of its total book. In 1QFY15, growth of micro
financing continued to be strong at 30.2%yoy. However, management
is not concern on the asset quality of Niaga’s micro financing as it
backed by some collateral and is not unsecured.
Upticks in NPL of corporate/commercial loans in Thailand
related to energy/commodity sectors. In 1QFY15, CIMB Thai
reported higher NPL ratio of 3.7%.
MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK
Kindly refer to the last page of this publication for important disclosures
MIDF RESEARCH
Tuesday, 28 April 2015
This is due to the classification of NPL for several corporate loans arising from slower repayment. Management
highlighted that these loans are related to the energy/commodity sectors. On retail loans in Thailand, with the weaker
economy, we gather that management has adjusted its credit origination standards to be more stringent as well as
strengthen its credit collection team.
No alarming signs on asset quality of loans for Singapore and Malaysia operations. For Singapore
operations, recall earlier that its loan base has expanded with the growth in Reminbi trade related loans. We
understand that its trade related loans have already been diversified away from a strong concentration on financing of
China related trades. Management does not foresee any issue on the asset quality of its loans in Singapore.
For domestic operations, insofar as its corporate loans, the Group has stressed tested its loan portfolio related to Oil &
Gas, Palm Oil and Steel Sectors and found no concerns on asset quality that warranted provisioning. We understand
that it has stressed test its loans to the Oil & Gas sector with a drop of oil price to USD40-50 pb and loans to
plantation sector with a low palm oil price of RM1,300 per tonne. We are comforted by the fact that most of its
lending to the Oil & Gas sector are to service providers and not to exploration companies. Meanwhile, its loans GLCs
remain healthy due to its borrower’s strong balance sheet while for SME loans, its financings are mainly secured by
cash and properties, hence no alarming concerns on asset quality.
Management is watchful on weaknesses in the auto loans segment and on lending to the lower income segment
which are mainly personal loans with salary deduction via Angkasa. On domestic retail loans, ASB and mortgage loan
growth have been decent while auto loans has been slow due to the expected weakness for the segment as well as
the tight credit spreads for vehicle financing.
For the Group as a whole in FY15, management continues to guide a credit cost of 40-50bp.
Equity business still slow but fixed income and FX business improving for the Group’s Wholesale
Banking. We understand for the Group as a whole, equity business is still slow. Nevertheless, it was better than
FY14. With a volatile market, FX income has improved while bond issuances have seen pick up in momentum.
Initiatives to drive IB cost down by 30% in 2015 have been 70-80% completed. The Group’s initiatives to
drive IB structural cost down after its acquisition of RBS assets have been 70-80% completed. Full completion of the
initiatives which involves IB restructuring (exiting Australia and streamlining other areas of IB business) is expected by
2QFY15. The Group will be reporting restructuring cost/expenses which are likely to offset the reduction in IB
expenses. We expect this to be a dampener on its earnings in FY15. Nevertheless, these initiatives are likely to
contribute to a lower OPEX by RM400-600m in FY16.
No necessity for Group restructuring and change in financial holding company. In view of the Group’s low
double leverage ratio, management highlighted that there will be not much of benefit for Group to restructure and
change its financial holding company as in the case of RHB Cap. Group CET-1 ratio stands at 10.1%.
New stock exchange regulation next year will require Niaga’s public shareholding spread to be at least
7.5%. CIMB Niaga’s public shareholding spread stands at 2.1% with 97.9% shareholdings held by CIMB Group. The
new regulation is expected to result in CIMB Group paring down its shareholdings in Niaga to at least 92.5% next
year.
FORECAST
We lower our net profit estimate for FY15 to RM4.05b by 4.1% after imputing a higher credit cost assumption of 40bp
(previously 35bp). For FY16, we fine tune our estimates slightly and lowered our net profit forecast by 1.6% to
RM4.39b.
VALUATION AND RECOMMENDATION
Operating environment in Indonesia and Thailand is expected to remain challenging with potentially further provisions
for loan impairment. The high provisions for loan impairment by Niaga are expected to continue in 2QFY15. Niaga and
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MIDF RESEARCH
Tuesday, 28 April 2015
CIMB Thai’s focus on shifting loan mix towards higher quality credits with lower yields will compress both entities’ NIM
ahead. Also, restructuring cost for IB initiatives is likely to offset the Group’s lower IB OPEX in FY15. Although our net
profit estimates have been revised lower, our BVPS estimates have only been slightly reduced. Hence, we maintain
our TP of RM6.20, pegging the stock to 1.3x PB multiple on FY15 BVPS and keep our NEUTRAL recommendation.
INVESTMENT STATISTICS OF CIMB GROUP
FYE Dec
FY13
FY14
FY15F
FY16F
Net interest income (RM’m)
7,954
8,656
9,139
9,932
Islamic banking income (RM’m)
1,593
1,461
1,636
1,679
Non-interest income (RM’m)
4,600
4,029
4,107
4,352
Total income (RM’m)
14,672
14,146
Pretax profit (RM’m)
5,849
4,276
14,881
5,278
15,963
5,710
Net profit (RM’m)
4,540
3,107
4,053
4,385
Core Net profit (RM’m)
4,188
3,159
4,053
4,385
EPS (sen)
60.0
37.5*
49.0
53.0
Core EPS (sen)
55.3
38.1*
49.0
53.0
PER (x)
9.0
6.2
8.0
8.7
Net Dividend (sen)
23.8
21.0
19.0
21.0
Net Dividend Yield (%)
3.9
3.4
3.1
3.4
Book value per share (sen)
3.92
4.44
4.79
5.12
PBV (x)
1.6
1.4
1.3
1.2
ROE (%)
15.5
9.2
10.4
10.6
*Lower than FY13 due to higher number of shares from its DRP as well as from share private placement exercise in Jan’14
Forecast by MIDFR
DAILY PRICE CHART
Kelvin Ong, CFA
[email protected]
03-2173 8353
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MIDF RESEARCH
Tuesday, 28 April 2015
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(Bank Pelaburan)
(A Participating Organisation of Bursa Malaysia Securities Berhad)
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expressed or implied, as to the accuracy, completeness or reliability of the information contained
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This report is not, and should not be construed as, an offer to buy or sell any securities or other
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assumptions could result in materially different results. All opinions and estimates are subject to
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MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS
STOCK RECOMMENDATIONS
BUY
TRADING BUY
NEUTRAL
SELL
TRADING SELL
Total return is expected to be >15% over the next 12 months.
Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been
assigned due to positive newsflow.
Total return is expected to be between -15% and +15% over the next 12 months.
Negative total return is expected, by -15% or more, over the next 12 months.
Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been
assigned due to negative newsflow.
SECTOR RECOMMENDATIONS
POSITIVE
The sector is expected to outperform the overall market over the next 12 months.
NEUTRAL
The sector is to perform in line with the overall market over the next 12 months.
NEGATIVE
The sector is expected to underperform the overall market over the next 12 months.
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