What You Need To Know About CIMB Group Holdings Bhd Before Investing

Remember Ban Hin Lee Bank? Or Southern Bank? What about Bank Bumiputra Malaysia? All these banks have one thing in common. Through multiple mergers and acquisitions, all these banks are now part of the CIMB Group Holdings Bhd (KLSE:CIMB) (CIMB 6.65 0.00 0.00%).

CIM Group is today the 2nd largest bank in Malaysia. It has an asset and deposit size of RM486 billion and RM339 billion respectively. It has a market capitalisation of RM59.8 billion as of June 2017. Malayan Banking Berhad (KLSE:MAYBANK) (MAYBANK 9.58 0.00 0.00%) is its largest competitor at the moment.

CIMB Group Holdings is the fifth largest bank in ASEAN, behind the three local banks in Singapore; DBS Holdings Group Holdings Ltd (SGX:D05) (D05 20.44 0.00 0.00%), United Overseas Bank Ltd (SGX:U11) (U11 22.93 0.00 0.00%) and Oversea-Chinese Banking Corp. Limited (SGX: O39) (O39 10.59 0.00 0.00%).

CIMB Group Holdings is listed on Bursa Malaysia since 2003 and is now offering a 3% dividend yield for investors.

However, the questions in investors’ mind now might be:

  • Is CIMB Group Holdings Bhd still a good investment?
  • Is there still room to grow for the massive bank?

Let us investigate that with the key things you need to know about CIMB Group Holdings Bhd.

  1. Stock Information

1

TICKER SYMBOL: KLSE:from CIMB | 1023.KL

MARKET CAP: RM 59.8 Billion (Updated 12th June 2017)

SECTOR: Financial

INDUSTRY: Banking

  1. The Business

CIMB Group Holdings Bhd is today an international bank with a focus in ASEAN. It is present in 16 countries and has 909 retail branches (2016) worldwide. CIMB Group Holdings is one of the few banks that has branches in 9 out of 10 countries in ASEAN.

Apart from its key markets in ASEAN, it is also operating in Greater China, the USA, the UK, India, Sri Lanka, Taiwan and South Korea.

At the moment, the top 4 markets for CIMB Group by its profit before tax in 2016 are:

  • Malaysia (78%)
  • Indonesia (17%)
  • Singapore (5%)
  • Thailand (0%)

In 2016, the company generated RM16.1 billion in revenue and RM3.65 billion in net profit. It produced a return on equity of 8.3%. The company also paid out 49.5% of its profit as dividend during the year.

Operation Segments

CIMB Group classifies its business into 5 main segments: The profit before tax contribution in 2016 by each segment is as follows:

  • Consumer Banking (46%)
  • Commercial Banking (6%)
  • Wholesale Banking (40%)
  • Group Asset Management and Investments (GAMI) (5%)
  • Group Funding (3%)
Consumer Banking

Consumer banking is its retail business which provides financial products for the public. This includes products such as

  • Deposit accounts,
  • Loan,
  • Personal financing,
  • Credit cards,
  • Wealth management & investments,
  • Bancassurance
  • Remittance and foreign exchange

Some of the profit generators for its consumer banking segments are its mortgage loans, auto loans and credit cards.

This segment produced a profit before tax of RM2.266 billion in 2016.

Commercial Banking

Commercial banking serves small to middle size businesses. This includes services like trade financing, corporate cards, loans, and deposits.

This segment generated an operating income of about RM2.04 billion in 2016.

Wholesale Banking

Wholesale banking serves CIMB Group’s large corporate clients and also its retail private banking customers. It also includes its brokerage, corporate finance advisory and capital market fund raising.

Group Asset Management and Investments (GAMI)

GAMI consists of its fund management business for both the public and private markets. At the end of 2016, the company has more than RM67.5 billion in asset under management (AUM) for its public market segment and RM6.3 billion in AUM for the private market segment.

  1. Key Opportunities

Strong Market Positioning

CIMB Group Holdings Bhd has been positioning itself as the “ASEAN Bank”. It has focused on building up its presence in the region, mainly through merger and acquisition. For example, the group acquired Bank Niaga in 2002 and merged it with Lippo Bank in 2008 to form CIMB Niaga. It is now one of the largest lenders in Indonesia.

Similarly, in Thailand, CIMB Group bought a controlling stake in BankThai in 2009. At that time, BankThai is already one of the top ten banks in Thailand.

Today, the company is already in 9 out of the 10 countries in ASEAN and has a target to reach all 10 countries in the next few years. This could give CIMB Group a strong advantage to provide services to companies who are looking to expand in the ASEAN region as well.

Moreover, the ASEAN Economic Community (AEC) could bring this region closer together. And if the region is able to form a more integrated economy together, the potential for more trades and commerce are huge. And as one of the largest financial institution here in ASEAN, CIMB Group is very well-positioned to participate in this growth and help businesses around ASEAN to do more business with one another.

Active Management

From the hundreds of Annual reports that I read a year, CIMB Group Holdings has one of the best annual reports in the financial industry. It provides good details on the development of the business and the outlook for the future. It also publicly states the company’s targets for its shareholders to see.

 

CIMB Group HoldingsSource: Company’s 2016 Annual Report

Quite impressive to me is the fact that its Chairman, Dato’ Seri Nazir Razak, wrote his own chairman statement. It might come as a shock to you but many chairman’s letters in the annual report are not written by the chairman. However, in the case of CIMB Group, one could tell that the piece is written by the chairman himself.

All these means CIMB Group Holdings tries to operate at a very transparent level. This is a good sign for shareholders and they can get a candid and direct feedback from the management.

  1. Key Risks

Rise of FinTech

As such a big organization, there are many risks and threats that are awaiting CIMB Group Holdings Bhd. One such threat is the rise of FinTech, or Financial Technology firms. We have seen how technology has disrupted traditional businesses such as retailing (Alibaba), transportation (Grab | Didi Chuxing) and even telecommunication (WeChat and Whatsapp).

Technology has the ability to lower the playing field and allow small players to compete directly with industry leaders. In recent years, there have been huge amount of investments going into FinTech, enabling many of them to produce new products and solution that were traditionally offered only through the banks. It is still unclear how the new technology might disrupt the banking business, but it is important for investors to keep an eye on the development of this fast-growing industry.

Although CIMB Group has the plan to start its own FinTech division, it is still unclear if the company has the ability to disrupt its own business model that has proven to be so profitable over the past few decades.

Lack of Growth Over the Past 6 Years

Although CIMB Group Holdings has been growing its loan books and revenue over the past few years, its operating profit has not really seen a huge growth since 2010. In 2010, the company recorded a revenue of RM11.8 billion and an operating income of RM4.6 billion. Yet in 2016, its revenue stood at RM16.06 billion but operating income is still around RM4.89 billion.

Thus, it raises questions on whether CIMB Group has been focusing too much on growing its revenue instead of its profits.

  1. Valuation

CIMB Group is current trading at about 16.4 times its earnings and at 1.3 times its book value. The bank also provides an attractive yield now at about 3.0%.

Compared to some of the regional banks’ valuation, it is actually trading at a premium to its peers.

  1. Investor Relations

Investor Relation Material:

You can read their investor relationship team through this link.

  1. Top Shareholders (31stDec 2016)

    1. Khazanah Nasional Bhd – 29.34%
    2. Employees Provident Fund Board – 13.38%
    3. Amanah Saham Bumiputra – 4.89%
  1. Financials

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.

Stanley Lim, CFA

Stanley Lim has spent the last decade in the investment industry. Over the course of his career, he has kick-started a few businesses, worked in the family office industry and most recently in the investment advisory industry. He has been a writer and analyst for The Motley Fool Singapore from 2013 to 2017. He has written close to 2000 articles online, on investment education and market analysis. He is the co-writer for the upcoming investment book: “Value Investing In Asia”, scheduled to be published late 2017. Stanley is currently the chief editor of Value Invest Asia.

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