WHATS NEW

CIMB Group chairman Datuk Seri Nazir Razak, the face behind the country’s second largest lender, may leave the banking group. Sources say Nazir has informed the CIMB board of directors that he will not be seeking a re-election as the chairman of the banking group and will leave when his term finishes next August. While there is talk that Nazir could leave earlier than August, the source says so far, there has been no indication of him being “told to go”. “He has not been called in by the Council of Eminent Persons (CEP) or anyone else,” says the source. Tun Daim Zainuddin has said that it is entirely up to Dato Seri Nazir Razak if he chooses to retire early or to see through his contract terms (Source: The Star)

COMMENTS

Unlikely to impact business operations significantly. Datuk Nazir Razak’s potential resignation or intention not to seek re-election as Chairman is unlikely to affect the group’s operations as we believe that Datuk Seri Nazir Razak’s role may be more of a consultative role on large decision-making processes. The group’s operations and strategy planning are largely spearheaded by the CEO (Dato’ Sri Zafrul Tengku Abdul Aziz), CFO (Shahnaz Jammal) and its management team, which also includes the likes of Renzo Veigas and Thomas Meow (advisors to Group CEO office). In addition, Datuk Seri Nazir Razak’s stake in CIMB Group Bhd is only 0.47% and as such will not cause a share overhang if he were to sell down his stake. His exit may also pave the way for investors’ perception of a more institutionalised and professionally managed CIMB.

Maintain BUY (CIMB MK/BUY/RM5.45/Target: RM7.40). Despite the potential risk of a slower domestic corporate loans growth trend and weaker near-term investment banking income outlook, given the heightened capital market volatility, we think current valuations at below - 1SD to its long-term mean PE and P/B have priced in the abovementioned earnings risks. We continue to project an above-industry earnings growth of 16% for FY18, driven by a downward normalisation in credit cost to 56bp vs FY17’s 76bp. The stock continues to trade at an attractive 10.3x 2018F PE (5-year historical mean of 13.3x) and 1.06x 2018F P/B (historical mean of 1.20x).

Source: UOB Kay Hian Research - 2 Jul 2018