Highlights

1Q results will include sale of its 51% in CIMB Aviva for RM1.1bn. However, it will also book in one-time restructuring costs (which is aim at lowering longer-term costs), amortization of intangibles as well as the full impact of RBS costs (estimated to add 4.5% to FY12 overheads).

Note that in FY12, the group only recognized 6-month of RBS Hong Kong and 2-month of RBS Australia while the rest of the RBS acquisitions were not completed. Given the delay in signing on existing clients (despite completion of full platform in Apr), RBS brokerage business will only run at full capacity from 2H onwards. This also implies that it will only break-even by end-13.

Nevertheless, despite the above items, 1Q numbers would suggest that it is on track to meet FY13 KPIs. Thus, most of the guidance and KPIs remained unchanged.

There was also lengthy discussion on further enhancing its consumer bank with successes in ASB, HP, cards (preferred customers but not the mass market) and Speed Sent (it own proprietary system akin to Western Union). Thus, consumer bank JAWS (growth in overheads vs. income), which narrowed in FY12 should see some improvement in FY13 and more traction in FY14.

Despite revenue growth, CIR will increase due to full impact of RBS costs (but not revenue) especially in 1Q and gradually decline. Although CIR by 4Q is expected to be higher yoy, the improvement will continue into FY14.

Acquisition of Bank of Commerce is pending finalization of a definitive collaboration agreement with San Miguel.

CIMB Thai corporate and commercial segment is gaining traction but consumer banking is facing issues like distribution and single presence.

Catalysts

Gaining more traction in retail, SME and cost rationalization, better than expected non-interest income growth, turning into an APAC universal bank and more active capital management.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income if there is a slowdown in capital markets.

Forecasts

Unchanged, pending results announcement on 21 May.

Rating

HOLD

• Positives - Proxy to economic growth and capital markets, robust prospects of Indonesia banking industry and growing regional universal bank platform.
• Negatives - Non-interest income may fall short if capital markets soften.

Valuation

• Target price raised to RM8.42 (Gordon Growth with ROE of 15.7% and WACC of 10.9%) vs. RM7.86 previously as we roll forward all our banking valuations to 2014.

Source: Hong Leong Investment Bank Research - 02 May 2013