- We maintain our BUY rating on CIMB Group Holdings Bhd (CIMB), with an unchanged fair value of RM9.50/share. This is based on unchanged ROE of 15.4% FY13F, and fair P/BV of 2.2x.

- CIMB’s net earnings for 1Q came in at 17.7% above our forecast, and 15.7% above consensus estimates, due mainly to a RM515mil gain on sale of its insurance units. The 1Q if annualised made up 29.4% of ours and 28.9% of consensus forecasts for FY13F. Stripping off the gain and one-off restructuring costs, its 1Q net profit was 9.0% below our forecast and 10.6% below consensus forecast, the main reason being higher overhead costs due to further inclusion of RBS operations.

- Group loans growth was quite resilient at an annualised growth of 12.1% in 1QFY13, contributed by strong corporate loans. NIM decline by 16bps, on account of CIMB Niaga’s 64bps QoQ decline in NIM which had been reported earlier. The NIM is in line with the company’s revised target of 10bps to 15bps decline for FY13F. The company alluded to low LDR utilisation for Malaysia (at 74%) currently, which is likely to be increased given strong corporate loans pipeline ahead. This should aid NIM in the quarters ahead.

- For the newly acquired RBS operation, the company reported that institutional brokerage income division has now increased 67.3% YoY to RM77mil in 1QFY13, from RM46mil in 1QFY12. There were also several ECM deals attributed to RBS, the main ones being:- (a) a USD1.5bil ECM mandate for Matahari Department Store; (b) a HKD820mil IPO for Termbray Petrofield Oilfield Services Ltd; (c) a SGD1.3bil IPO for Asia Pay Television Trust (2Q) and (d) RMB820mil conv. Bond for China Dye.

- Looking ahead, CIMB alluded to targeting additional sustainable revenue of RM300mil to RM400mil from the newly acquired RBS operations. The additional costs from RBS came up to RM122mil in 1Q although the company hinted that this is likely to be lower ahead as these included integration costs. Thus, on a net-net basis, the RM300mil to RM400mil is deemed to be sufficient breakeven point for RBS.

- The 1QFY13 is positive as it indicates that the uptick in RBS’ costs is not as high as perceived, while there is now early evidence of improved revenue from RBS division. In addition, the outlook ahead looks strong for both the investment bank and corporate bank divisions. We support the company’s expansion into the Asia-to-Asia intermediary market. Among the local banks, we believe CIMB stands a strong chance to grow from an ASEAN bank to an Asian player. We therefore view any increase in cost-to-income as a necessary investment cycle and are neutral on the possible uptick ahead.

Source: AmeSecurities