- We are maintaining our BUY rating on CIMB Group Holdings Bhd (CIMB), with an unchanged fair value of RM9.50/share. This is based on an unchanged ROE of 15.4% FY13F, taking into account a dividend reinvestment scheme (DRS). This leads to a fair P/BV of 2.2x.

- CIMB’s foreign shareholding stood at 40.0% as at endMarch 2013. This was a 0.6ppt rise from 39.4% as at endFebruary 2013.

- In terms of monthly flows, we estimate the net number of shares bought by foreign shareholders at 44.6mil in March 2013.

- This has turned from the net selling of RM29.7mil in February 2013 and RM44.6mil in January 2013.

- For the quarter to March 2013, there was still net selling by foreigners. We estimate the net amount sold by foreigners at RM29.7mil.

- We believe CIMB’s flat foreign shareholding already reflects some levels of risk aversion by foreign shareholders.

- In addition, CIMB’s share price is also likely to have discounted significant levels of pessimism over CIMB’s non-interest income.

- At the current share price, the market is now implying a non-interest income level of RM3.4bil for FY13F.

- To recap, CIMB chalked up a record non-interest income of RM4.4bil in FY12, a strong increase of 18% YoY. Looking ahead, we forecast a non-interest income of RM4.2bil for FY13F.

- Given that CIMB Niaga has now achieved nearly RM1bil in non-interest income in FY12, this means that for the domestic portion, the market is now pricing-in a noninterest income of only RM2.4bil.

- This would be just slightly ahead of FY05’s level of RM1.7bil before CIMB’s full transformation into a universal bank. We believe non-interest income is unlikely to drop to the pre-FY05 level.

- Two-thirds of FY12’s increase in the non-interest income were from the more sustainable portion. Further, CIMB’s regional push had led to a near two-fold increase in regional DCM and ECM mandates in FY12.

- We expect the following re-rating catalysts for CIMB:- (a) sustainability in non-interest income; (b) better-thanexpected asset quality. Maintain BUY.

Source: AmeSecurities