Is CIMB Group Holdings Bhd Worth Investing In?

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On 18 December 2018, CIMB Group Holdings Bhd (CIMB) is trading at RM 5.65 a share, 22.6% decline from RM 7.30 some 8 months ago.

Source: Google Finance

So, should we grab CIMB now? Or, should CIMB be dismissed?

In this article, I’ll revisit its fundamentals, bring an update on its latest financial results and assess its investment potential with a handful of valuation tools. As such, here are 7 things to know about CIMB before you invest.

#1: Asset Quality

CIMB has expanded its portfolio of Loans, Advances, and Financing (LAF) assets by CAGR of 12.0% over the last 10 years. It has increased from RM 117.4 billion in 2008 to RM 324.2 billion in 2017. In that period, the bank has been gradually improving its asset quality as it reduced its Gross Loan Impairment Ratio (GLIR) from 6.1% in 2010 to 3.4% in 2017. But nevertheless, the ratio is relatively high when compared to other local banks in Malaysia and listed banks in Singapore.

Source: CIMB’s Annual Reports

The increase in LAF assets had contributed to its growth in net interest income, up from RM 4.66 billion in 2008 to RM 10.46 billion in 2017.

Source: CIMB’s Annual Reports

#2: Non-Interest Income

In addition, CIMB has achieved growth in income from Islamic Banking and fees and commission income. This is due to a rapid overall growth in Islamic Finance and demand for wealth management products over the last 10 years.

CIMB’s income from Islamic Banking activities had risen from RM 437.8 million in 2008 to RM 2.13 billion in 2017. Concurrently, its fees & commission income has grown from RM 1.41 billion in 2008 to RM 2.20 billion in 2017.

Source: CIMB’s Annual Reports

#3: Long-Term Profitability

The increase in net interest income, Islamic Banking, and fees and commissions had contributed to CIMB’s growth in operating revenues.

It has risen from RM 7.74 billion in 2008 to RM 17.63 billion in 2017.

Source: CIMB’s Annual Reports

During the period, CIMB has maintained its cost-to-income ratio at 50% – 60% a year, but, has incurred substantially high impairment losses since 2014 due to a bigger write-off from its loan assets in Indonesia and Thailand. Its shareholders’ earnings had tumbled in 2014 and 2015 after strings rapid growth from 2008 to 2013. Since 2016, its earnings had recovered despite high impairment losses in the last 2 years. This is due to continuous growth in operating revenues stated above which had offsetted the impairment losses in 2016 and 2017.

Source: CIMB’s Annual Reports

CIMB has achieved a 4-Year ROE average of 8.10% a year. This means, it made RM 8.10 in earnings a year from every RM 100.00 in shareholders’ equity from 2014 to 2017.

#4: Latest Financial Results

From a shorter view, I find that CIMB has kept earnings at above RM 1 billion a quarter over the last 12 months. CIMB had made RM 16.73 billion in operating revenue and RM 4.59 billion in shareholders’ earnings or 48.99 sen in earnings per share (EPS).

Figures in RM Million unless stated otherwise

Period	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Total
Revenue	4,515.5	4,150.0	3,925.2	4,140.5	16,731.2
Earnings	1,060.2	1,305.9	1,042.4	1,179.7	4,588.2
EPS (Sen)	11.3	13.9	11.1	12.6	48.99

Source: CIMB’s Quarter Reports

#5: Balance Sheet Strength

As at 30 September 2018, CIMB has total capital adequacy ratio (CAR) of 16.9% and an allowance coverage of 92.0%. It has maintained a stable credit rating of Baa1 from Moody’s.

#6: Relationship between CIMB’s Profits & Stock Price Performances

Interestingly, CIMB’s stock price has mirrored its financial results over the long- term. The decline in profits in 2014 and 2015 has sent CIMB’s stock price falling from RM 8 levels to as low as RM 4. Higher profits in 2016 and 2017 has helped CIMB to recover in stock price, thus, recording RM 5.65 currently.

Source: CIMB’s Quarter Reports

Source: Google Finance

#7: Stock Valuation

Here, I’ll share a few metrics to value CIMB at RM 5.65 a share.

(1) P/E Ratio:

In Point 4, I had calculated that CIMB had made 48.99 sen in EPS for the last 12 months. Its current P/E Ratio is 11.53, below its 10-Year Average of 13.64.

Key Statistics (18 December 2018):

10-Year P/E Ratio Range: 10.73 – 16.25

10-Year P/E Ratio Average: 13.64

Current P/E Ratio: 11.53.

(2) P/B Ratio:

In Q3 2018, CIMB has net assets of RM 5.34 a share. Thus, its current P/B Ratio is 0.945 which is below its 10-Year average of 1.66.

Key Statistics (18 December 2018):

10-Year P/B Ratio Range: 0.88 – 2.72

10-Year P/B Ratio Average: 1.66

Current P/B Ratio: 0.945

(3) Dividend Yields:

CIMB has started to pay out 25.0 sen in dividends per share (DPS). Thus, based on its stock price of RM 5.65, its dividend yield is 4.42% per annum, well above its 10-Year average of 3.41%.

Key Statistics (18 December 2018):

10-Year Dividend Yield Range: 2.06% – 6.05%

10-Year Dividend Yield Average: 3.41%

Current Dividend Yield: 4.42%

VIA’s Verdict

CIMB has built a track record of achieving higher operating revenues as a result of expanding loan portfolio and Islamic Finance. However, when compared to a list of local banks and Singapore-listed banks, CIMB’s loan portfolio is lacking in terms of quality with an inferior Gross Loan Impairment Ratio and as well as its allowance coverage ratio.

In terms of valuation, CIMB is more or less similar to Singapore-listed banks but the Singapore banks have superior asset quality and credit ratings.

Stock	OCBC	UOB	DBS	CIMB
P/E Ratio	10.35	10.41	11.20	11.53
P/B Ratio	1.20	1.04	1.38	0.945
Dividend Yield	3.29%	3.86%	4.97%	4.42%
Credit Rating	Aa1	Aa1	Aa1	Baa1

So, what is your verdict? Please leave your comments below:

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