The group's annualized 9MFY12 earnings were  largely  in  line  with  both  our  and consensus full-year estimates.  Rolling forward our valuation metrics to FY13, we  have raised our fair value to RM9.07 from RM8.53. Our new fair value is based on  an implied FY13 PBV of 2.14x, ROE: 16.1%, COE: 9.6% and terminal growth rate of  4%.  The stock's  current  valuation  of  1.8x  FY13  PBV  and  11.8x  PER  is  relatively  undemanding, Maintain BUY.

In  line.  The  group's  annualized  9MFY12  earnings  were  in  line  with  expectations,  representing  77%  and  74%  of  consensus  and  our  full-year  estimates  respectively.  However,  the  commendable  result  was  partially  due  to  a  lumpy  RM133m  gain  from  recovery  of  impaired  loans  at  CIMB  Thai.  Adjusting  for  the  lumpy  write-back,  9MFY12  results would came in marginally below our full-year estimates (5.2% below) as a result  of  integration  cost  from  the  RBS  acquisition  estimated  at  RM35m  and  a  18.8%  q-o-q  surge  in  staff  cost  arising  from  it,  where  revenue  synergies  have  yet  to  flow  through.  Despite  the  surge  in  staff  cost  arising  from  RBS,  overall  group  cost  to  income  ratio  remained steady  at 56.1%  as  strong  forex  flow  business  from  its  treasury  and markets  division  (+77.5%  y-o-y  and  +18.7%  q-o-q),  which  lifted  overall  non-interest  income  by  18.2%  y-o-y,  was  sufficient  to  offset  the  higher  cost  base  arising  from  the  RBS  acquisition estimated at 6% of overall group operating cost.

Commendable y-o-y core operating growth. 9MFY12 net profit expanded 12.5% y-o-y  while  3Q12  net  profit  grew  2.9%  q-o-q.  Core  pre-provision  operating  earnings,  which  exclude  the  lumpy  RM133m  gain  from  the  lumpy  write-back  of  impaired  loans  from  CIMB  Thai,  grew  by  a  relatively  robust  13.3%  y-o-y  despite  a  15.1%  y-o-y  increase  in  operating  costs.  Overall  net  interest  income  expanded  10.4%  y-o-y  with  CIMB  Niaga  (+24.6%) and to a certain extent corporate wholesale banking (+7.2%) driving growth as  Malaysian  and  Singapore  consumer  banking  units  chalked up  a  subdued collective net  interest  income  growth  of  4.0%  y-o-y  given  the  persistent  net  interest  margin  (NIM)  pressure and moderating consumer loans growth.

CIMB  Niaga  and  Group  Treasury  performed  favourably.  CIMB  Niaga  and  CIMB  Group Treasury were the star performers, registering respective PBT growth of 29.9% y-o-y  and  77.5%  y-o-y.  Overall  non-interest  income  growth  of  18.2%  was  fueled  by  a  robust 193.5% y-o-y growth in forex income largely in the form of sustainable customer  flow  business  from  greater  cross  selling  initiatives  of  treasury  hedging  products  across  its  regional  wholesale  banking  customers.  The  increase  in  forex  volatility  and  spreads  has also played out positively for the group in terms of greater demand for forex hedging  products and margins.

Loans  growth  moderates  with  consumer  loans  facing  the  brunt  of  the  slowdown.  Following  2Q12  relatively  robust  5.2%  q-o-q  loans  growth,  3Q12  sequential  growth  moderated  sharply  to +0.4%,  bringing  9MFY12  annualized  growth  to  6.7%  vs  our  11%  full  year  growth  estimates  partially  attributed  to  depreciation of IDR, certain lumpy corporate repayment in the quarter and slowing consumer loans growth.  However,  this  will  be  partially  mitigated  by  a  strong  bond  pipeline  given  the  increasing  traction  on  ETP  projects.  In  terms  of  loans  segment  consumer  was  by  far  the  weakest  with  mortgages  and  auto  loans  growing at an annualized pace of 6.5% and 6.6% respectively and credit cards declining 3.6%. Despite the  lumpy corporate loan repayments in the quarter, group overall corporate loans' grew 10.7% y-o-y  far  outpacing consumer loans growth.  

Asset quality intact. The group's asset quality remained largely intact, with absolute gross impaired loans  declining  4.4%  q-o-q  and  gross  impaired  loans  ratio  declining  further  to  4.2%  from  4.4%  in  2Q12.  Indonesian loans portfolio registered a marked 15.3% q-o-q improvement in absolute impaired loans, while  Malaysian operations witness a slight 2.1% q-o-q improvement. With overall credit cost rising to 16bps from  10bps  in  2Q12  despite  of  an  improving  asset  quality  trend, loans  loss  coverage  ratio increased  further to  84% from 82% in 2Q12.

Raising fair value to RM9.07 ' Maintain BUY. Rolling forward our valuation metrics to FY13, we have  raised our fair value to RM9.07 from RM8.53. However, this also factor in a reduction in our ROE  assumptions for FY13 to 16.1% from 16.8% as we reduce our dividend payout assumptions to only 40%  from our original 50% given the possible guidance of a reduced payout assumption if Basel 3 capital  deductions turns out to be more punitive than what management expects. Our new fair value is based on  an implied FY13 PBV of 214x, COE: 9.6% and terminal growth rate of 4%. Current valuations of 1.8x FY13  PBV and 11.8x PER is relatively undemanding, Maintain BUY.

 Source: OSK