- We maintain our HOLD rating on CIMB Group Holdings (CIMB), with an unchanged fair value of RM4.70/share. Our fair value is based on an unchanged ROE of 9.6% for FY16F, leading to an unchanged fair P/BV of 1x.

- CIMB’s annualised 3QFY15 net earnings was 12.5% below our forecast and 16.4% below consensus’ estimate of RM3,384mil FY15F. The 9M net earnings made up 62.6% of our estimate and 59.8% of consensus forecast for FY15F. The shortfall is due to a much higher-thanexpected loan loss provision.

- The company hinted that it had experienced an uptick in delinquent loans for the Malaysian consumer portfolio during the festive season in July and August 2015, but that this had since improved in September 2015 and October 2015.

- Credit costs remained elevated, at 73bps in 3QFY15, which is similar to the 77bps level in 2QFY15. Earlier, CIMB had hinted on our recent company visit that credit costs is likely to be more than its earlier targeted 40bps to 50bps, but unlikely to be higher than 70bps to 80bps range.

- CIMB now foresees that credit costs is likely to remain at the current 70bps level in 4QFY15.

- In terms of capital, we estimate the fully loaded CET1 ratio to be 9.3% in 3QFY15, slightly higher than the fully loaded CET1 ratio of 9.2% in 2QFY15.

- While CIMB reiterated that it does not have any plans for any rights issue at this moment, we believe the latest results indicate that there are likely to be ongoing concerns for its capital level.

- We estimate that every 1ppt increase in group CET ratio translates into additional capital requirement of RM3.1bil.

- Looking ahead, the company expects regional economies to remain weak, leading to a sustained challenging operating environment and soft capital markets. It expects asset growth to likely decelerate from 4QFY16 in regional consumer and commercial banking across all operating economies. We maintain HOLD.

Source: AmeSecurities Research - 26 Nov 2015