Tuesday 26 February 2013

CIMB’s 4QFY12 results draws mixed reactions feb 2013 - CIMB’s 4QFY12 results

CIMB’s 4QFY12 results draws mixed reactions feb 2013, CIMB’s 4QFY12 results draws mixed reactions feb 2013, CIMB’s 4QFY12 results draws mixed reactions feb 2013

Analysts have offered mixed reactions to CIMB Group Holdings Berhad latest fourth quarter results. PublicInvest Research chose to maintain its outperform call on CIMB maintaining its target price of RM8.50. However, Alliance Research maintained their neutral call and trimmed their target price by 0.46 sen to RM7.81.
CIMB reported net profits of RM 1.08 billion for the quarter, 4.5 percent lower than the corresponding quarter of 2011. Nazir Razak, CIMB Group’s chief executive officer attributed lower profits seen in 2012 to the RM250 million deconsolidation of CIMB Aviva that happened in the fourth quarter of 2011.
Nonetheless the Group announced full year net profits of RM4.35 billion, a 7.8 percent growth from the previous year.  Net earnings per share was 58.4 sen and net return on average equity was 16 percent. The result was in line with market consensus.
CIMB identified a record year in capital market transactions and the strong performance of the treasury market division which recorded a 43.8 percent pre-tax growth, as key catalysts for this growth.
PublicInvest Research who are maintaining their outperform call dismissed the current share price weakness due to the upcoming General Election as unwarranted. It is also keeping an unchanged target price of RM8.50 with a potential upside of 20.2 percent from current levels.
PublicInvest Research’s Ching Weng Jin described the results as a solid end to the financial year for CIMB, saying that it has surpassed in house estimates. He emphasised the strong performance of the Group’s regional banks, especially CIMB Niaga in Indonesia and the record growth of its treasury markets division as key contributors to the Group’s future growth.
Ching highlighted efforts to reduce domestic dependence as a factor for future success citing the ongoing growth in the Indonesian market and the stabilising in the Thai economy. In 2012, operations in Indonesia recorded a 33.4 percent (although contributions mounted to 24.5 percent due to an 8.9 percent depreciation of the Rupiah) year on year growth, while Thailand posted a 20.1 percent rise. The Group is also is in talks for purchases in the Philippines, which is another potential market.
He also singled out “the Group’s rapid expansion of its business-related loan portfolio over the recent years,” noting that it continues to be an important driver of interest income growth. Investment banking activities also ended the year on a high, recording a cumulative pre-tax profit of RM 309 million for the whole year and its diverse platform is expected to continue bringing in solid results in 2013.
Furthermore although seen as challenging, the Group’s plans (see chart) for a broad reduction of its cost-income ratio is seen as achievable and is being viewed as a likely contributor to future growth.
Going forward, PublicInvest said that despite the challenging environment in the regional economic arena, it was confident that the Group’s diversity and current firm footing will help it through.
On the other hand, Alliance Research has maintained its neutral recommendation on the Group’s stock and trimmed its target price to RM7.35 from RM7.81 despite the growth. Analyst Cheah King Yoong explained, “the target price implies a 1.8x FY13 P/B and 15.2 percent return on equity under our Gordon Growth Valuation Model.”
In discussing the target price adjustment, Cheah identified the upcoming general election as a key consideration in their reassessment of the target price. Stating that “the group’s share price performance could be capped in the near term given that the Group is highly vulnerable to increased market risk premium,” especially in view of the upcoming election and CIMB’s high foreign shareholdings.
He also pointed out that CIMB was in “capital conservation mode,” saying that estimates of a 40 percent dividend payout in 2013 underlines this. The quantum is the same amount it paid in 2012.
On Tuesday CIMB’s stock price closed at RM 7.07, down one sen from its opening price of RM 7.08

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