CIMB: Signs of A Bottom

Background

On June 25, Starbiz featured a write-up on CIMB entitled "CIMB Is Back". There are a few interesting points made in the interview with its CEO, Tengku Zafrul, such as:
1. CIMB will not be calling for a Right Issue to increase its capital base. It managed to raise more capital by selling off its non-core businesses.
2. It seems to suggest that the Indonesian operation may be bottoming out. This operation, which used to contribute ~40% to its bottom-line, suffered a drop of more than 70% in the past 2 years. If this operation can actually turnaround, the impact on CIMB's bottom-line will be significant.
3. It's working to lower its cost-to-income from 59% in Jan 2015 to 53% for 2016.

Last 10 years performance

In the past 2 years, CIMB's profits had been sliding due to the need to make loan loss provision on its Indonesian business. CIMB's CEO had spoken to their clients in Indonesia and they want to invest. He is expecting 2nd half to be better than 1st half.


Chart 1: CIMB's last 10 years' results

Last 5 years performance

From the half-year performance, we can see that things are slowly turning around.


Chart 2: CIMB's last 5 years' results (presented in half-yearly numbers)

Valuation

CIMB (closed at RM4.31 last Friday) is now trading at 0.9x  its book value of RM4.80 as at 31/3/2016. This makes CIMB the cheapest big bank in Malaysia. (Note: AMBank is trading at a PBR of 0.9x but AMBank is a medium-size bank.)

Technical Outlook

CIMB is trading just below its long-term uptrend line. To counterweight this bearish sign, we have two bullish indicators reading:
1. MACD crossed above its MACD signal line
2. ADXR has peaked though the -DMI is still above the +DMI


Chart 3: CIMB's monthly chart as at July 1, 2016 (Source: ShareInvestor.com)

Below, I have plotted the 10 years chart against 10 year financial performance. If the bottom-line turnaround, the share price should swing back up.


Chart 4: CIMB's monthly chart as at July 1, 2016 & 10-year results (Source: ShareInvestor.com)

Conclusion

Based on slight improvement in financial performance and attractive valuation, CIMB could be a good banking stock to consider for your investment portfolio.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, CIMB.