-  We maintain our HOLD rating on CIMB Group Holdings Bhd (CIMB) with an unchanged fair value of RM7.80/share for FY14F. This is based on an FY14F ROE of 13.0% and an unchanged fair P/BV of 1.7x.

-  CIMB’s annualised net earnings for 3QFY13 (excluding earlier one-off gain from sale of insurance unit) was 3.1% and 3.5% below ours and consensus FY13F estimates, respectively.

-  The investment banking operations remained subdued, while there was a pick-up in the treasury division. Regional corporate banking (excluding Indonesia) was stable.

-  Non-interest income was flat QoQ despite muted fee income from the investment banking operations. The softer investment banking operations was offset by an unexpectedly higher investment and trading income of RM324.4mil in 3QFY13 compared to RM171.0mil in 2QFY13.

-  However, this was mainly driven by unrealised gains from derivative financial instruments, which generally tends to be volatile, judging by historical trends. The marked-tomarket position from its securities available-for-sale has now turned into an unrealised loss of RM15.6mil in 3QFY13, from an unrealised gain of RM291.3mil earlier in 2QFY13.

-  There was an uptick in credit costs to 36bps in 3QFY13, compared to 13bps in 2QFY13. This came partly from CIMB Niaga, and partly from lower writebacks for Malaysia as well as upticks in the Malaysia consumer segment. The increase in the consumer segment were attributed to the festive period in end-September 2013 but this is expected to normalise by 4QFY13.

-  Going forward, the company expects treasury and markets division to recover in 4Q13. In addition, it also expects 4Q13 top line to be stronger, led by the investment banking division, Malaysian consumer division and the regional corporate banking pipeline.

-  However, it expects CIMB Niaga’s contribution to remain muted. DCM pipeline is expected to be better but treasury and markets as a whole will still need to navigate relatively volatile markets.

-  The latest 3Q indicates softer underlying trend, with loan loss provision is now registering an upward trend, unrealised losses in its marked-to-market position for its securities AFS, and muted fee income. We maintain Hold.

Source: AmeSecurities