- We maintain our HOLD rating on CIMB Group Holdings (CIMB), with an unchanged fair value of RM6.30/share. This is based on an unchanged FY15F ROE of 11.2% and an unchanged fair P/BV of 1.3x.

- CIMB’s net earnings for 1QFY15 included an exceptional restructuring expense of RM202mil. This came from oneoff rationalisation costs of its investment banking operations.

- Stripping off this item, and on annualised basis, net earnings is 28.4% below our forecast, and 29.1% lower than consensus net earnings estimate. The 1Q made up 13.3% of our estimate and 13.1% of consensus forecast for FY15F.

- Recall that CIMB is targeting to complete the bulk of its targeted RM400mil to RM600mil restructuring costs this year. The company alluded that the latest round of MSS may possibly be similar to the previous MSS in FY13, whereby the MSS cost was RM217mil, based on 1,217 employees who took up the offer. The payback period was 19 months. Given the latest results, we now expect the latest MSS costs to likely be included in the next quarterly results.

- The company indicated that it is still on track and expects the bulk of these restructuring costs to be completed by the middle of this year. It does not foresee the requirement to undertake further rationalisation at this juncture.

- Top line’s loans growth of 8% on an annualised basis was more or less in line with expectations, but the company reported a net interest margin (NIM) of 2.65% in 1QFY15, about 14bps QoQ lower than 2.79% in 4QFY14.

- The decline came in below the company’s target of NIM compression of 5bps to 10bps YoY for FY15. The compression in NIM was attributed higher funding costs mainly from its retail division. This came from greater deposit costs largely for Indonesia and Malaysia. The company believes NIM compression may be closer to -20bps YoY for FY15F.

- All in, the main new information in the 1QFY15 results was the lower-than-expected NIM, and our new expectation that the latest MSS costs will likely be included in next quarter’s results and not in 1QFY15, as well as likelihood that the restructuring costs to be at the lower end of the targeted RM400mil to RM600mil. We maintain HOLD.

Source: AmeSecurities Research - 21 May 2015