News  CIMB announced that Dato’ Sri Nazir Razak will be assuming the role of Chairman of the Board after Tan Sri Md Nor Yusof retires from his current post.

 Additionally, Dato’ Sri Nazir Razak will relinquish his position as Group CEO but will chair an Executive Committee of the board to focus on key strategic matters and enhance the board’s oversight functions. This will take effect on 1 Sept 2014.

 A new Group CEO will be announced after all regulatory approvals are obtained. However, management disclosed that no potential candidate has been identified thus far.

Comments  We do not foresee any major leadership transition risk as Dato’ Sri Nazir Razak will continue to spearhead the company but in a different role. Besides, we understand that the new CEO must complement his work ethics and share the same vision. Hence, we are not overly concern with a change in senior management team.

 In the interim, we believe major 2014 KPI targets will be kept: (i) ROE of 13.5%-14.0%, (ii) total stock return > FBM KLCI, (iii) DPR of 40%, (iv) total loans growth of 14%, (v) loan loss coverage: 35-40bps, (vi) total capital > 13%, and (vii) CET1 > 8.5%.

Outlook  We believe the company could perform better in the subsequent quarters as compared to 1Q14, as the macro situation in Indonesia improves coupled with the strong performance in its Thailand and Singapore consumer & commercial banking businesses. Furthermore, we also expect a decent outlook for the domestic financial market as well.

 Concerns over its capital adequacy and double leverage have been addressed given its recent RM3.6bn share placement.

Forecast  No change to our forecasts.

Rating Maintain MARKET PERFORM

Valuation  Our TP of RM8.00 is maintained, implying 1.8x FY15 P/B and 13.5x FY15 P/E.

Risks to Our Call  Tighter lending rules and further margin squeeze.

 Tougher operating environment, especially in investment banking and treasury market.

 Deterioration in Indonesian Rupiah and NPLs.

 Further rise in interest rate.

 Lacklustre trading/investment sentiment during the transition period.

Source: Kenanga