AmWatch - CIMB Group : Neutral impact from change in rating services agency BUY, 25 Sep 2014

STOCK FOCUS OF THE DAY

CIMB Group : Neutral impact from change in rating services agency         BUY

The press recently reported that Standard & Poor's Ratings Services (S&P) has withdrawn its rating on CIMB Group Holdings Bhd at the banking group’s request. At the same time, S&P also affirmed its 'BBB-' long-term and 'A-3' short-term issuer credit ratings on CIMB Group, and its negative outlook with an 'axBBB+' long-term and 'axA-2' short-term Asean regional scale ratings on the company. S&P said the negative outlook on the long-term rating mainly reflected its banking industry country risk assessment on Malaysia.

There was no change in S&P’s ratings, which was last changed in November 2013. To recap, in November 2013, S&P had revised the credit outlook on four Malaysian banks to Negative from Stable. The four banks are CIMB Group Holdings Bhd (CIMB),  AmBank (M) Bhd, RHB Bank Bhd and RHB Investment Bank Bhd. S&P had said then the negative outlook is due to concerns on rising home prices and household debt.  

Note though that CIMB had just been recently rated for the first time by Moody’s Investors Service (Moody’s). In July 2014, Moody’s has assigned AAA long-term issuer ratings to CIMB. We understand that the CIMB’s request for S&P to cease rating coverage is due mainly for cost-cutting measures. We concur with the move, given the ongoing incurrence of fees.

In July 2014, Moody’s also issued Prime-2 short term issuer ratings to the group. The ratings outlook for the non-operating financial holdings company is stable. Together, these credit factors result in the CIMB group's issuer rating being positioned at A3, which is two notches above its intrinsic standalone financial strength of baa2. 

Generally, the differences in ratings may possibly influence funding cost, if there are plans to raise funding from long-term debt instruments. Nevertheless, funding costs for banks had been increasing over the past 12 months. For CIMB, we think that this change in rating agency is neutral.  

Others :

Padini Holdings : Increasing potential of Brands Outlet    HOLD

Economic Update : Ringgit depreciates by 2.4% in 1H of September

Property Sector : Pre-emptive move, but impact of higher foreign pricing threshold likely negligible         OVERWEIGHT

QUICK TAKES

Al-Aqar Healthcare : Looking for another buyer for Selesa Tower              HOLD

Plantation Sector : Tax war between Malaysia and Indonesia?    NEUTRAL

Banking Sector : Banks have likely adopted stricter provisioning basis      NEUTRAL

NEWS HIGHLIGHTS

UEM Sunrise : Sees property upswing

Pos Malaysia : Pos Ar Rahnu expects GST exemption for IPM

Malaysia Marine and Heavy Engineering Holdings : Launches JV with France’s Technip to bid for contracts in O&G industry

Genting Plantations : Teams up with Elevance to build biorefinery factory in Sabah

Oil and Gas Sector : Petronas closer to completing world’s first floating LNG facility