- We maintain our BUY rating on CIMB Group Holdings (CIMB), with a lower fair value of RM6.30/hare (from RM6.60/share previously). This is based on revised FY15F ROE of 11.4% (from 11.5%), leading to an unchanged fair P/BV of 1.4x.

- CIMB Group has announced the outline of its new T18 (short for Target 2018) plans and key organisation changes. This set of initiatives is referred to as T18.

- The key staff changes are effective 1 March 2015. One of these is related to the Wholesale Banking Division. The current Corporate Banking, Treasury & Markets Division and Investment Banking Division will be combined to form an integrated Wholesale Banking Division. Tengku Dato’ Zafrul Aziz will assume the post of CEO of Wholesale Banking.

- Dato’ Lee Kok Kwan, currently CEO of Corporate Banking, Treasury and Markets will be appointed Adviser to Group CEO for Wholesale Banking. Dato’ Lee will also be appointed to the board of CIMB, upon obtaining regulatory approval.

- While there are major changes in roles, we are somewhat assured there is also some measure of continuity in the reorganisation. We have reviewed our non-interest income line as we expect a period of adjustment for the company, as well as to take into account the generally quieter capital markets.

- In addition, we also expect a large clean-up loan loss provisioning ahead, in particular for CIMB Niaga’s coal and coal-related loan. We believe that loan loss provisioning will be large, given that CIMB Niaga is likely to raise back its loan loss cover to 80% from 51%. All in, we have revised upwards group credit costs to 106bps from 57bps. On the whole, this supersizes up our loan loss provisioning forecasts for the group as a whole to RM2.5bil FY14F, from an already upsized RM1.4bil earlier.

- Our FY14F net earnings forecast has thus been lowered by 32.8% to RM2,728mil. CIMB has reported a net earnings of RM2,907mil for its 9MFY14. Thus, instead of the normalised net earnings of around RM1bil per quarter, we now expect a net loss of circa RM180mil, for its 4QFY14. .

- Despite the changes, our book value forecast for FY15F remains relatively intact, at RM4.56/share (from RM4.73/share previously). This means that valuation remains compelling, at only 1.2x for CIMB. Maintain BUY.

Source: AmeSecurities