Deutsche Bank Malaysia Berhad

Deutsche upgrades CIMB group for its strong fundamental trends

In upgrading CIMB, which has become its top pick among Malaysian banks, Deutsche Bank noted its “superior regional franchise, outstanding management and strong balance sheet.”

Deutsche Bank has upgraded CIMB Group Holdings Bhd to a buy, with a target price to RM8.20 from its previous target of RM8.

In a report dated Sept 2, Deutsche Bank analyst Andrew Hill pointed out that CIMB’s fundamental trends were better than what its current share price implied and that the recent under-performance was an excellent entry point.

“We still rate CIMB’s management highly and we think most investors would agree. The established regional footprint positions CIMB to become a leading Asean banking franchise, an attractive place to be given low leverage and a young and growing population in the region,” he said.

“Since early June, the stock has fallen 14%, underperforming large cap Malaysian bank peers by 15% to 16%. But the sell-off is overdone in our view.

“On earnings per share (EPS) forecast, we have lowered it by 4% to 5% to reflect slower lending. CIMB is now the cheapest of the large Malaysian banks,” said Hill in the report.

Buoyed by the report which upgraded CIMB, the stock climbed 33 sen to close yesterday at RM7.40 on a volume of 31.28 million shares.

Hill is forecasting CIMB to deliver net profits of RM4.09bil and return on equity (ROE) of 16.9% for its year ended June 31.

At RM8.20, CIMB would be trading at PE of 12.8 times based on the forecast net profit.

Hill noted that within three months, CIMB has moved from an 8% forward PE premium to a 5% discount.

“However it’s still a quality franchise and we still expect CIMB to deliver double digit estimate EPS growth from 2011 to 2013.

“What might surprise investors who saw the recent share price move is that CIMB delivered the best net interest income growth among its peers for the second quarter to June 30. This represented a 4% increase on a quarterly basis and a seven basis points quarterly net interest margin uplift.

Banking and Finance: Comparative Table of Malaysia Base Lending ...

1&Nbsp;   Affin Bank Berhad                                            12/05/2011                        6.60 4    AmBank (M) Berhad                                         13/05/2011                        6.60 7    Bank of China (Malaysia) Berhad                       12/05/2011                        6.55        (Malaysia) Berhad                                            11/05/2011                       6.25 9     CIMB Bank Berhad                                           11/05/2011                       6.

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