AmWatch - CIMB Group : A lacklustre 2Q, but excellent opportunity to buy BUY, 2 Sep 2014

STOCK FOCUS OF THE DAY

CIMB Group : A lacklustre 2Q, but excellent opportunity to buy                 BUY

We maintain our BUY rating on CIMB Group Holdings Bhd (CIMB) with an unchanged fair value of RM8.20/share for FY14F. This is based on possible new merger scenario whereby RHB Cap may acquire CIMB in the potential mega bank merger between CIMB, RHB Cap and MBSB.

CIMB’s annualised 2QFY14 net earnings fell short of our forecast by 8.6% and consensus estimates by 15.5%. The main area of shortfall is in the non-interest income line, although this is not a major disappointment as the company had earlier hinted that conversion of its investment banking pipeline remains soft. CIMB’s 2Q results are pretty lacklustre.  However, we view the 2Q earnings as providing a good indication for a base case earnings scenario, without any robust contribution from the investment bank and treasury divisions.

For the proposed merger with RHB Cap and MBSB, CIMB reiterated that the deal structure has to be value accretive for all three parties, with sufficient operational synergies and cost benefits. In our earlier report dated 25 August 2014, our sensitivity indicates that if RHB Cap acquires CIMB, CIMB may potentially be worth RM8.20/share.

We believe that the possible upside for CIMB from the new merger scenario is not yet fully reflected in CIMB’s current share price. The risk-reward trade off for CIMB still looks favourable. Thus, we reiterate our BUY rating on CIMB -  a possible weakness in share price from the lacklustre 2Q results provides an excellent opportunity to buy.

Others :

Sime Darby : Operating result in line; lower tax boosts net profit               BUY

SapuraKencana Petroleum : Additional jobs worth RM393mil      BUY

Mah Sing Group : Massive boost from prime Puchong land  - GDV: RM9bil            BUY

Ta Ann Holdings : 1H outperforms; 2H expected to be weaker    HOLD

Banking Sector (1) : Foreign holdings in MGS for July at a new recent peak            NEUTRAL

Banking Sector (2) : Peppering of bright spots in July data             NEUTRAL

QUICK TAKE

Plantation Sector : Additional jobs worth RM393mil         NEUTRAL

Felda Global : Makes cash offer for APL HOLD

NEWS HIGHLIGHTS

Malaysian Resources Corporation : New benchmark for RRI land

SapuraKencana Petroleum : Unit discovers gas offshore Sarawak

Banking Sector : Banks told to cut down on cheque issuance