AmResearch

CIMB Group Holdings - A likely uneventful 1Q HOLD

kiasutrader
Publish date: Mon, 28 Apr 2014, 10:03 AM

- From our latest company visit, we gather that CIMB’s mortgage loans growth in the domestic market is likely to be slow, in line with the industry. CIMB reckons that primary launches generally make up about 50% of total new mortgage applications, while the remaining 50% are from the secondary market.

- Given the softer primary residential launches, it expects mortgage loans to ease off. It expects retail loans of 11% to 12% this year for Malaysia and Singapore combined (vs. circa 19% in FY13). Malaysia retail loans growth will likely be 10% vs. 14%-15% in FY13F.

- The corporate loans segment is likely to experience some large redemptions for the Malaysian market. On the flip side, the redemptions are mostly related to government related loans with lower yields, thus net interest margin will likely be boosted by newer higher-yielding non-government related corporate loans. CIMB had earlier articulated a loans growth target of 14% for FY14F.

- On the deposit front, there was increased competitive pressure on the retail fixed deposit segment in Malaysia. CIMB’s strategic stance is to not participate in these, but to build up net interest margin via cross-selling and bundling of other higher-yielding loan products. CIMB further indicated that there were no major increases in cost of funds for the wholesale money market deposits. CIMB expects net interest margin to compress by 5bps to 10bps for FY14F overall, with most of the compression mainly arising from CIMB Niaga.

- Equity capital market- (ECM) related activities were likely to be quieter in 1Q, while the debt capital market is believed to have held up well. Treasury flows are also expected to be sustained. It reckoned that ECM pipeline is still generally sustained but realisation of the mandates is mainly dependent on the capital market.

- It is slightly more positive on CIMB Niaga in general. As for credit costs, CIMB is maintaining its overall credit cost target of 35bps to 40bps. There have been no major strains in its Malaysia auto loans portfolio. CIMB experienced an uptick in February but it had since normalised in March 2014. One of CIMB’s benchmark definition of vulnerable borrowers are those with monthly income of RM3k or less - these makes up about 10% to 15% of total borrowers. We expect a pretty uneventful 1Q for CIMB, in line with industry. We maintain HOLD.

Source: AmeSecurities

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