· We maintain our HOLD rating on CIMB Group Holdings (CIMB) with an unchanged fair value of RM5.60/share. This is based on a normalised (excluding one-off costs) FY15F ROE of 10.5% and an unchanged fair P/BV of 1.2x.

· At our recent company visit, CIMB indicated that the rate of improvement, in terms of CIMB Niaga’s loan loss provisioning in 2QFY15 and 3QFY15, is unlikely to be as dramatic as earlier anticipated. This is mainly because the Indonesian economy remains challenging.

· In the short term, loan loss provisioning is expected to remain elevated in 2QFY15, although it will not be as high as what was seen in 4QFY14 and 1QFY15.

· Looking ahead into 3QFY15 and 4QFY15, while loan loss provisioning is expected to be better, the rate of improvement is now expected to be more muted.

· As for its Malaysian operations, the company alluded that there has been some slowdown seen particularly in the retail segment, with some indications of lesser loan demand after the implementation of GST. Thus, the company alluded that its loans group growth target of 10% for FY15F looks challenging. Non-interest income is relatively soft, due to the cautious stance taken by corporates in terms of bond raising plans, and the quiet ECM pipeline.

· Based on the latest indications, we have downgraded our net earnings for FY16F by 7.3%, due to the following:- (a) downgrade in loans growth assumption to 7.6%, from 9.1% previously, in view of a slowdown from 2H2015 onwards; (b) a 9.2% YoY decline (previously: 2.9% decline) in non-interest income to reflect the slower market conditions; and (c) our credit costs assumption has been raised to 39bps, from 33bps, to better reflect the current macro trend.

· Our current fair value is still based on FY15F’s normalised net earnings (stripping off impact from the cost restructurings). Looking ahead into FY16F, we now project a normalised ROE of 10.4% (vs. 11.2% previously). FY16F’s fair value is estimated at RM5.60/share (vs. RM6.50/share previously), based on a fair P/BV of 1.2x (previously 1.3x).

· The key takeaways from the company visit in our view are lesser chance of quick major improvement for CIMB Niaga, and an overall slowdown anticipated for Malaysia in 2H2015. Maintain HOLD.

Source: AmeSecurities Research - 22 Jul 2015