PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
17 May 2010
MARKET DATELINE

CIMB Group Share Price

Fair Value
:
:
RM14.40
RM16.24
Streamlining CIMB Niaga’s Shareholding Structure Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (CIMB; Code: 1023) Bloomberg: CIMB MK

Net EPS Net Net
FYE PBT Profit EPS Gwth PER BVPS P/Book C.EPS* DPS Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 (a) 3,811.9 2,806.8 79.5 37.5 18.1 5.76 2.5 - 18.5 1.3 15.0
2010 (f) 4,882.0 3,373.2 95.6 20.2 15.1 6.13 2.3 97.4 18.5 1.3 16.1
2011 (f) 5,763.4 3,976.6 112.7 17.9 12.8 6.79 2.1 115.2 18.5 1.3 17.4
2012 (f) 6,712.4 4,619.1 130.9 16.2 11.0 7.63 1.9 130.4 18.5 1.3 18.1
Main Board Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Acquiring up to 19.67% interest in CIMB Niaga from Khazanah. Issued Capital (m shares) 3,531.8
CIMB announced on 14 May a proposal to acquire Khazanah’s 17.1% Market Cap (RMm) 50,857.4
equity stake in CIMB Niaga and a further equity interest of 2.57%, Daily Trading Vol (m shs) 7.0
although the latter sale would be at the sole discretion of Khazanah 52wk Price Range (RM) 8.50 - 14.82
(Proposed Acquisition). The Proposed Acquisition could amount up to Major Shareholders: (%)
RM1.9bn (IDR1,155/CIMB Niaga share), which would be satisfied by the Khazanah 28.0
issuance of up to 134m new CIMB shares at an issue price of EPF 13.6
RM14.50/share. BTMU 4.3

♦ Valuations appear fair ... The acquisition price of IDR1,155/CIMB Niaga FYE Dec FY10 FY11 FY12
share is at a 14.4% premium to the 5-day volume-weighted average price EPS chg (%) - - -
(VWAP) and implies an acquisition multiple of 2.5x FY09 book Var to Cons (%) (1.9) (2.2) 0.3
value/share. The issue price for the new CIMB shares represents a 1.5%
premium to the 5-day VWAP and implies a similar P/BV (FY09) of 2.5x. PE Band Chart
We note that these figures are broadly in line with the valuation multiples
transacted during the Bank Niaga-Lippo merger, where the new CIMB and
CIMB Niaga shares issued then were priced at 2.4x and 2.5x historical PER = 19x
P/BV respectively. Hence, the valuations appear fair, in our view. PER = 16x
PER = 13x
♦ … while EPS neutral to the group. Conservatively annualising CIMB PER = 10x

Niaga’s 1Q10 results and assuming net profit growth is in tandem with
the group, we estimate the acquisition could enhance the group’s FY11
net profit by around 4-5%. However, the new CIMB share issued would
increase CIMB’s issued capital by 3.8% and consequently, the Proposed
Acquisition is likely to be EPS neutral. Relative Performance To FBM KLCI
♦ Approvals and time frame. The Proposed Acquisition is subject to
approvals from, among others, BNM and CIMB’s shareholders (Khazanah
will abstain from voting), and is expected to be completed by 4Q10. CIMB Group

♦ Risks. The risks include: 1) slower-than-expected loan growth; 2)

deterioration in asset quality; 3) changes in market conditions that may FBM KLCI
adversely affect investment portfolios and capital market related income;
and 4) forex fluctuation of its foreign subsidiaries.
♦ Forecasts. No change to our earnings forecasts.
♦ Investment case. We remain upbeat on the group’s earnings prospects
as its domestic growth engine remains intact while it is well-poised to
scale up its presence in regional markets, post transformation. In
addition, we believe the group is the best proxy to ride on the expected
strong non-interest income growth ahead given its strong franchise,
capabilities and regional platform that could offer multiple local currency
related deals. Moreover, negotiations to sell its bad bank would be
positive for both asset quality as well as profitability (release of capital for David Chong, CFA
more productive utilisation). Thus, we reiterate our Outperform call. Fair (603) 9280 2186
value of RM16.24 is based on 17x CY10 EPS. david.chong@rhb.com.my

Please read important disclosures at the end of this report. Page 1 of 3

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Table 2 : Earnings Forecasts Table 3 : Ratio Analysis & Forecast Assumptions

FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F
Net Interest Income 6,876.0 7,876.6 8,643.3 9,510.5 Asset Quality (%)
(+ Islamic Banking) Gross NPL 4.48 3.98 3.48
Non-interest Income 3,716.8 3,989.3 4,308.4 4,654.1 Net NPL 1.6 1.4 1.2
Operating Income 10,592.7 11,865.8 12,951.7 14,164.6 SP / NPL 66.00 66.00 67.00
GP / Net Loans 1.3 1.3 1.3
Less: Overhead Loan Loss Coverage 93.4 96.8 102.2
Expenses (5,717.6) (6,003.5) (6,303.7) (6,617.9) Core Capital Ratio 12.5 12.3 12.4
Pre-provision RWCAR 13.6 13.3 13.3
Profit 4,875.1 5,862.3 6,648.0 7,546.7
Margins (%)
Less: Loan Loss Yields On Earnings Assets 5.25 5.23 5.21
Provisions (1,097.3) (1,020.3) (926.6) (878.4) Avg. Cost Of Funds 2.35 2.35 2.35
Operating Profit 3,777.8 4,842.0 5,721.4 6,668.3 Interest Spread 2.90 2.88 2.86
Un-adj NIM (ex-Islamic Inc) 3.02 2.99 3.00
Associates 34.0 40.0 42.0 44.1 Adjusted NIM (+Islamic Inc) 3.42 3.40 3.40
Pretax Profit 3,811.9 4,882.0 5,763.4 6,712.4
Profitability (%)
Less: Tax (764.8) (1,220.5) (1,440.8) (1,678.1) ROE 16.06 17.43 18.14
Effective Tax Rate 20.1 25.0 25.0 25.0 ROA 1.33 1.42 1.51
(%) Cost / Income Ratio 50.59 48.67 46.72
Profit After Tax 3,047.1 3,661.5 4,322.5 5,034.3 Expenses / Avg. Assets 2.36 2.24 2.16
Provisions / Avg. Net Loans 0.68 0.56 0.49
Minorities (240.3) (288.3) (346.0) (415.2)
Net Profit 2,806.8 3,373.2 3,976.6 4,619.1 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 76.3 75.9 74.7
Net / Gross Loan Growth 10.4 9.4 8.3
Deposit Growth 15.0 10.0 10.0
Source: RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

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investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for
the actions of third parties in this respect.

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