- 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 has increased to 42.7% as at end-May 2013, from 42.0% as at end-April 2013. We estimate the net number of shares bought by foreign shareholders at 52mil in May 2013. This is less than the estimated 149mil in April 2013.

- From beginning of the year to end-May 2013, the net buying by foreign shareholders is now at 170mil. However, this is still below the FY12’s net shares sold by foreign shareholders of 275mil. So in other words, the amount acquired so far YTD has not yet exceeded the net amount sold in FY12.

- CIMB’s share price had retraced from a post-election high of RM8.65 to current levels, after the release of its 1Q results. We believe this could be due to several reasons, including effects of the Rupiah, a soft 1Q earnings and high overhead costs. However, concerns over the Rupiah movement may be unwarranted. We estimate that every 1ppt depreciation in the Rupiah:USD rate will trim our net earnings forecasts for CIMB Group overall by 0.7% - thus impact is relatively minor.

- We believe the main uncertainty is still on sustainability of non-interest income. However, to recap, the 1Q was encouraging as:- (1) there were indications of some early wins from its newly incorporated RBS operations. Institutional brokerage income which includes the newly acquired RBS operations has now increased by 67.3% YoY to RM77mil in 1QFY13, from RM46mil in 1QFY12, indicating increased traction for RBS; (2) non-interest income on an annualised basis would have been RM4.6bil, exceeding the record RM4.4bil achieved in FY12. And, the 1Q performance was against a quiet backdrop for its investment banking operations.

- On an overall basis, our non-interest income forecast is now RM5.0bil (previously RM4.2bil), taking into account revenue contribution from RBS. At the current share price level, the market is pricing in non-interest income of RM4.4bil FY13F, unchanged from FY12’s RM4.4mil.

- We expect the following re-rating catalysts for CIMB:- (a) better-than-expected non-interest income with further evidence of rising income from RBS operations; (b) stable overhead costs; (b) stable asset quality.

Source: AmeSecurities