Can We Still Invest In CIMB Group Holdings Bhd?

Listed in 1987, CIMB Group Holdings Bhd (CIMB Group) is the fifth largest banking group in Southeast Asia. It operates from over 851 branches that are located across 15 nations, including all 10 countries in the ASEAN region. As I write, CIMB Group is valued at RM 62.2 billion in market capitalization. In this article, I’ll list down 8 things that you need to know about CIMB Group before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: CIMB / KLSE: 1023
Market Capitalization: RM 62.2 Billion (12 May 2018)

Share Price: RM 6.90 (12 May 2018)

Industry: Finance

Syariah Compliant: No

#2: The Business

Presently, CIMB derives income from four business segments:

1. 1. Consumer Banking
      It offers both conventional and Islamic banking services to individual customers and small businesses such as deposit accounts, remittance, loans, credit cards, wealth management, and bancassurance products. In 2017, this segment has generated RM 2.57 billion in profits before tax, thus, is presently among the two biggest income contributors for CIMB Group.  
   2. Wholesale Banking
      It comprises of investment banking, corporate banking, transactional banking and treasury services which are catered to corporate based & institutional clients. In 2017, this segment has also generated RM 2.57 billion in profits before tax. Therefore, it is also a main contributor of income to CIMB Group.
      

 

• Commercial Banking
  It is focused on offering small-and-medium sized businesses services such as credit facilities, trade financing, remittance, foreign exchange, and general deposit products. In 2017, this segment has reported RM 235.8 million in profits before tax. Thus, it is a smaller contributor of income to CIMB Group.
  

 

• Group Asset Management and Investments
  It has both private and public asset management portfolios with core operations in Malaysia, Indonesia, Thailand and Singapore. For 2017, this segment has reported RM 132.3 million in profits before tax, and thus, is the smallest contributor of income to CIMB Group.

#3: Profitability

Here are the key highlights of CIMB Group’s financial results:

Revenue

CIMB Group has reported consistent growth in operating revenue in the last 10 years. It increased from RM 7.74 billion in 2008 to RM 17.63 billion in 2017. This is due to continuous growth in net-interest income, profits from Islamic bank, and fee and commission based income during the period.

Shareholders’ Earnings

CIMB Group’s shareholders’ earnings had increased from RM 1.95 billion in 2008 to RM 4.54 billion in 2013. This was in line with its growth in operating revenue during the period. However, CIMB Group has recorded significantly higher loan loss provisions from CIMB Thai, CIMB Niaga and its operations in Singapore from 2014 to 2017.

The amounts incurred in 2014 and 2015 had outpaced CIMB Group’s growth in operating revenue. This had resulted in a decline in shareholders’ earnings to RM 2.85 billion in 2015. However, shareholders’ earnings had improved in 2016 and 2017 as CIMB Group’s growth in operating revenue have outpaced its loan loss provisions over the last 2 years. As such, CIMB Group’s earnings had grown from RM 2.85 billion in 2015 to RM 4.48 billion in 2017.

Return on Equity (ROE)

CIMB Group has achieved a 4-Year Return on Equity (ROE) averaging 8.10% per annum. It means, it has generated RM 8.10 in annual earnings from every RM 100.00 in shareholders’ equity from 2014 to 2017.

Source: Annual Reports of CIMB Group Holdings Bhd

Calculated from Figures Obtained from CIMB Group’s Annual Reports

#4: Balance Sheet Strength

As at 31 December 2017, CIMB Group has reported to have total capital ratio (TCR) of 16.5%. It is above the current requirement of 9.25%, which consists of a minimum requirement of 8.00% and an additional buffer of 1.25% set by Bank Negara Malaysia under the Basel III capital standards for 2017. It shows that CIMB Group is well-capitalized to pursue future business growth and as well as to meet adverse economic conditions in the future.

#5: Future Prospects

Here are the key highlights of CIMB Group moving forward:

Targets 2018

CIMB Group has set the following targets to be achieved in 2018:

1. Return on Equity = 10.5%
2. Dividend Payout Ratio = 40.0% – 60.0%
3. Total Loans Growth = 6.0%
4. Cost-to-Income Ratio = 50.0%

Partnerships

CIMB Group has forged several meaningful partnerships in China for 2017 which includes:

1. China Galaxy
   On 6 June 2017, CIMB Group has disposed 50% shareholdings of its regional stockbroking business: CIMB Securities International Pte Ltd to China Galaxy for RM 515 million. CIMB Group would retain the remaining 50% shareholdings of this business. The two partners would grow the stockbroking business by tapping on China Galaxy’s network, market access and technology know-how which is crucial to its expansion across China.
   
   
2. Ant Financial Services Group
   Touch ‘n Go Sdn Bhd, a wholly-owned subsidiary of CIMB Group, has received approval from Bank Negara Malaysia to set up a joint venture entity with Ant Financial Services Group in November 2017. The entity would be involved in providing a mobile wallet solutions in Malaysia.

The Philippines

In November 2017, CIMB Group received the approval from the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) to establish a bank branch in the Philippines. The retail branch is expected to be operational in Q4 2018.

CIMB Fintech

In 2017, CIMB Group has launched CIMB Fintech to drive innovation and to chart the group’s digital roadmap over the long-term. It would focus on areas such as cybersecurity, artificial intelligence (AI), Robo Advisor, Blockchain, and much more. In 2018, CIMB Group expects to have a market launch of its digital bank in Vietnam. It would work on similar propositions in some of its other markets, which includes the Philippines.

#6: Valuations

As I write, CIMB Group is trading at RM 6.90 a share.

In 2017, CIMB Group has reported earnings per share (EPS) of 49.6 sen. As such, its current P/E Ratio works out to be 13.91. In 2017, CIMB Group has also reported to have RM 5.35 in net assets a share. Thus, it has a current P/B Ratio of 1.29.

In 2017, CIMB Group has declared and paid out dividends per share (DPS) of 25.0 sen. Thus, if the bank is able to maintain DPS at 25.0 sen, its expected dividend yields would work out to be 3.62%. If I invest in CIMB Group at RM 6.90 a share.

Although many investors are worried about the impact on CIMB Group with regards to the new government, we are not that worried about its prospect. CIMB Group is similar to any other government-linked companies and should continue to play a major role in the economy for all stakeholders.

#7: Investors Relation

For further enquiries or to request for additional investment information on CIMB Group Holdings Bhd’s Investors Relation matters, you may contact:

Suria Zainal

Designation: Head – Group Corporate Communications Group CEO’s office

Tel: +603 – 2261 0638

Email: suriawati.zainal@cimb.com

#8: Major Shareholders

As at 28 February 2018, the substantial shareholders of CIMB Group Holdings Bhd and their respective shareholdings are as followed:

– Khazanah Nasional Bhd: 27.27%

– Employees Provident Fund: 12.46%

– Kumpulan Wang Persaraan (Diperbadankan): 6.14%

– Amanah Saham Bumiputera: 4.82%

– Amanah Saham Wawasan 2020: 1.96%

Note:

Dato’ Seri Nazir Razak, Chairman of CIMB Group Holdings Bhd, has 43.626 million shares of 0.47% shareholdings of CIMB Group Holdings Bhd. He is the brother of ousted Ex-Prime Minister of Malaysia, Najib Razak.

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