CIMB Group Holdings-Trading Sell- 11 November 2009

CIMB Group Holdings- In line with expectation (Result Note)



Price: RM12.82

Target Price: RM11.60

Recommendation:Trading Sell







· CIMB’s 9MFY10 net profit of RM2,004m was above our net profit estimate of RM2,537m (79%) and consensus’ RM2,541m (79%). Excluding one-off items of RM98mn relating to Indonesia’s business, the result was broadly inline (76%). 2Q corporate and investment banking related revenues of RM393m (-2.5% QoQ) were flat and the same to treasury revenue of RM386mn (+3.8%) impacted by macro fears on rate hike during the quarter.

· Traditional banking provides stability. Net interest income (RM1,595mn, +6.2% QoQ) growth combined with a stable cost income ratio (52%) produced a better 15.7% ROE for the quarter (vs. 2Q 15.5%). Asset quality remained benign with low net NPL ratio of 2.4% and NPL coverage increasing to 87%. YTD loan increased 11.7% is above year end target of 8%.

· We increase our FY09 net profit estimates by 3% to RM2,615mn incorporating one-off items mentioned above.

· CIMB group earnings growth is highly dependent on contribution from investment banking related businesses, both locally and abroad, with retail and corporate banking showing signs of flattening growth. External market condition still unsettling and the year-long local equity rally has likely outpaced the prospects for economic recovery. We expect 2010 to be a relatively slower year for investment banker and estimate CIMB net profit growth to be only 11% YoY (vs. consensus of 21%).

· Key concerns include the on going volatile sentiment that could slow capital market activities and hence related fee income. Market related revenues (stockbroking, investment banking and treasury) contributed 40% of CIMB’s total revenue in FY08-09 and we expect it to hover around 37% in FY10. Fee incomes would be most at risk should 2009 proves to be a bear market rally with equity and bond markets likely to be affected by potential global rate hikes. We see rising risk for non-interest income contributions and threat on Capital ratio to some extent