To  reflect  the  near-term  concerns  over  Indonesia,  we  trim  our  FY13-FY14  net  profit  estimates  by  4%-5%  and  lower  our  target  CY14  P/E  to 14x (from 15x). These result in a revised MYR9.75 FV (from MYR10.90). Nevertheless, we remain positive on Indonesia’s longer-term prospects while on the domestic front, we continue to see CIMB as one of the key beneficiaries of the ETP rollout. Maintain BUY.

- Indonesia  a  near-term concern  among  Asean countries.  Among  the Asean  countries  where  CIMB  is  present,  Management  is  most concerned  with  Indonesia  due  to  its  current  macro  headwinds  and vulnerability to foreign outflows. That said, these concerns are short term in nature. CIMB remains comfortable with the corporate segment there in terms  of  asset  quality  but  echoed  CIMB  Niaga  (Niaga)’s  view  that  the hikes in interest rates and fuel prices may affect consumer segment.

- Revision  in  targets,  if  any,  to  be  announced  in  2QFY13  results. CIMB  guided  for  loans  growth  of  12%  for  now.  Except  for  Indonesia, where growth would be more muted, Management appeared reasonably optimistic on  the  growth  outlook  for  its  other  key  markets. Similarly,  the main  pressure  on  net  interest  margins  (NIMs)  would  come  from Indonesia while NIMs in the other markets should remain stable, at least.  

- Impact  from  rising  bond  yields.  While  there  would  be  some  losses from the trading book, Management said these would be offset by gains in  other  areas.  Management  said  the  bond  book  was  duration  neutral and rise in yields would be positive for interest income going forward.

- Forecasts. We revise down our FY13 and FY14 net profit projections by 5%  and  4%  respectively,  largely  after  assuming  a  steeper  NIM compression  of  12bps  for  2013  (-4bps  y-o-y),  followed  by  a  relatively unchanged 3bps NIM contraction in 2014.

- Investment  case.  Besides  the  above  changes  to  our  FY13-FY14 earnings  estimates,  we  also  lower  our  target  CY14  P/E  multiple  to  14x, from 15x previously. This is to reflect the higher earnings risks, such as tougher  macro  environment  in  Indonesia,  and  leads  to  a  revised  FV  of MYR9.75 (from MYR10.90 previously). However,  we remain positive on the domestic front, backed by the Economic Transformation Programme (ETP), of which CIMB is expected to be one of the key beneficiaries due to its strong presence in the corporate banking area. Maintain BUY.

Source: RHB