All 3k units matched at 8.80. So now lets ride with it.

Inflation will increase in months to come once the petrol subsidy mechanism is introduced. In my humble opinion, BNM would wait for the CPI report post introduction of petrol subsidy mechanism before deciding if the interest rate should be cut down further. We need to have a balance and that is what BNM should aim for, so we shall wait few months for the petrol subsidy mechanism to kick in first.

Oopsie it breached RM8.80

It's ok, 8.78 is not that much of a difference. If it ever goes down to 8.65 then I purchase some more.

8.80 matched.

hopefully i made a good decision and good price for div


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Don't worry about short term price movements, just ride with it. It is a blue chip, so if you can get a good yield and at a good value, then it's the right decision. Small turbulence in the price is always expected, we just try to avoid the perfect storm only if possible.

8.60 good entry price??
Seems like few week time can match yo 🤑

Wow... Closed at 8.76..

Technically looking bad..

Petchem, another favourite blue chip, also dropped a lot..

Hi Yggdrasil,

I also looked at CIMB as it seems cheap on paper.

My take is I can't find what's compelling about CIMB though - it seems to me they over-expanded with very little to show for it... a bit all over the place. To borrow from Taleb, Banking is a Extremistan industry, where the big grow bigger. There's very little point being No. 8 in Thailand, for example.

CIMB's ROE is also very low, and has high bad loan formation... My short take is CIMB lacks discipline. They've promised a lot, but the delivery is really lethargic.

I like Maybank for its Islamic segment, mostly. Etiqa could be a nice wildcard bonus. What I don't like is the continuous share dilution with its DRP.

Other than Maybank, I have BIMB on my radar as well - again, Islamic is growing very strongly and has high efficiency and low bad loan formation - perhaps the threat of hellfire is very effective.

I hold both MBSB and takaful. Looking into BIMB too. Last earnimg was good.

Good opening. Epf buying in again

Well, in their 2018 Annual Report, CIMB has a plan called "Forward 2023". They aim to achieve several objectives such as an ROE of 12-13% (Current 2019 target: 9-9.5%).

In their previous plan T18 or "Target 2018", they have already achieved the following from 2014 to 2018:

Cost to income: 59.1% to 49.8% (Lower the better)
CET1: 10.1% to 12.6% (Higher the better)
ROE: 9.3% to 11.4% (Higher the better)

CIMB is also investing heavily into technology. FYI, they are owners of Touch & Go. Their e-wallet will likely gain dominance in Malaysia because of their huge customer base and their partnership with AliPay. Recently, CIMB formed CGS-CIMB in Malaysia, a stockbroking company, with a Chinese company after acquiring all of their shares.

While the past is not a predictor of the future, I think it is very good results. But to keep in mind that companies will try to manipulate results just to please shareholders.

CIMB's ROE is decent. Not as high as JP Morgan's 14% but still great. CIMB has achieved what they promised so far (See above). One reason why Maybank's share price is falling because investors are worried about Maybank's credit risk. Most of the defaults and potential defaults are from Maybank. See Hyflux Singapore case and one more Malaysian company (forgotten the name) is issuing Sukuk again because it breached the agreement and requires to repay the banks (where Maybank is one of the lenders).

CIMB also has Islamic banking while it may not be as great as Maybank's. CIMB also suffers from DRIPs problem. Correct me if I am wrong but I believe CIMB is worse than Maybank because CIMB allows DRIPs almost every dividend but Maybank only once out of the 2 dividends.

CIMB and Maybank don't give super high returns. I think probably an average of 8-14% p.a. (including dividends).
It is not a high growth company because there is not much room to grow. Everyone is already in debts and cannot get anymore loans without the risk of defaulting.

With that being said, banks today are more robust than the previous financial crisis.

Now the reason why CIMB is a reasonable buy at RM5.17 (as of 25/7/2019 10:55am). Is because it is trading below it's book value (Maybank is trading above). And I base my at least 8% return p.a. hypothesis based on the details of Khazanah's convertible bonds.

If you didn't know, Khazanah is the major shareholder of CIMB. Recently they needed money so they issued a zero coupon convertible bond. Extract from article from TheEdge:

"According to Bloomberg, the debt papers are convertible to CIMB shares that are currently held by Khazanah at the conversion price of RM6.14 or US$1.489 (for US$500 million). The five-year bonds mature on Aug 8, 2024 with zero coupon rate."

We know that a zero coupon bond is issued at a discount from its face value. But, to lower this discount, we need to lower the risk. Hence, Khazanah pledged CIMB's shares and gave the bond holders the option to convert at RM6.14


"“The shares were transferred pursuant to securities lending agreements that Khazanah had entered into with CGS-CIMB Securities Sdn Bhd, Credit Suisse Securities (Europe) Ltd and JP Morgan Securities plc respectively, in relation to exchangeable bonds issued recently,” read the statement."

CGS-CIMB is owned by CIMB. Any profit from the underwriting will go back to CIMB. Credit Suisse Securities (Europe) Ltd and JP Morgan Securities plc are big reputable investment banks. In fact, Warren Buffett likes JP Morgan so much that he keeps on buying it. Anyway, the main point is that these banks believe the fair value of CIMB in 5 years is at least RM6.14. They did the underwriting and know the inside and outside of CIMB better than us (public people).

Then, I make my own simple calculation based on the information of current share price, current dividend rate, future share price, and number of years (5).



Based on the calculation above, for 8% return:
Buy below RM5.25 per share
Buy below RM5.37 per share (if utilise DRIPs - i.e. 10% discount on average market price of shares)

Since you do not have my Excel file I will calculate for you:

Based on the calculation above, for 9% return:
Buy below RM5.04 per share
Buy below RM5.16 per share (if utilise DRIPs - i.e. 10% discount on average market price of shares)

Based on the calculation above, for 10% return:
Buy below RM4.48 per share
Buy below RM4.96 per share (if utilise DRIPs - i.e. 10% discount on average market price of shares)

Based on the calculation above, for 11% return:
Buy below RM4.65 per share
Buy below RM4.76 per share (if utilise DRIPs - i.e. 10% discount on average market price of shares)

Based on the calculation above, for 12% return:
Buy below RM4.47 per share
Buy below RM4.58 per share (if utilise DRIPs - i.e. 10% discount on average market price of shares)

Buying CIMB below the 12% return price should give you a return of >12% p.a. for the next 5 years.

Assumption:
1) CIMB share price in 5 years (at least RM6.14). If share price is higher than RM6.14, you will get higher return. But now, it will guarantee a minimum 8% return p.a. average.

2) Dividends will only increase a bit RM0.25 (2019) per year to RM0.26 (2024). This is a prudent calculation and I believe that the dividends will actually be higher by 2024. If dividend is higher than this calculation, you will get higher return.

3) CIMB will offer DRIPs every dividend until 2024. To be safer, ignore the DRIP.

4) If you follow the DRIP calculation, you must use DRIP every time when possible and do not sell the shares until the end. This will increase your dividend growth and allow you to buy even more shares.

Disclaimer: I currently hold 3,100 units of CIMB but do not wish to buy further because of better alternative investments and diversification.

Happy investing!

This post has been edited by Yggdrasil: Jul 25 2019, 06:35 PM

Yggdrasil, thank you for the detailed analysis shared with us.

With respect, I'd like to point out some issues that stood out for me:

Please do again correct / debate me if my analysis is wrong - I'm here to learn.

It seems that Target2018 goals have all been rolled back based on last 4Q and 2019's KPIs - that feels like janji dicapati to me. In other words, that's some quick fix steroids given by top management to get their T18 bonuses.

If I'm not mistaken, FY18 had some one-offs which burnished the results.

I used CIMB's 1Q19 stats here from Affin Hwang: ROE 9.2%, CIR 55%, GIL 3%

Quite a long way from what 2018 'delivered'. In other words, what was 'achieved' by management was a quick fix and not meant to be long term.

Interestingly, while MBB gets the headlines as it is a major corporate lender, CIMB's Impaired Loans Ratio is significantly (50bp) higher than MBB's (circa 2.5%).

You are spot on on the high household debt and potential property bubble situation - that's a potential black swan there that the local banks will have to look out for. Imho, banks will have to piggyback on general economic growth - I'll be very happy with 5-6% returns a year.

This is an extract from CIMB's Audited Annual Report 2015.

Compare that to CIMB's Audited Annual Report 2018.



They achieved everything except the ROE they promised. They must have revised their targets between 2016-2017 (lazy to look).



For example, they revised their 2019 targets in 2018 Annual Report (report was published in 21 Mar 2019) because of the change in economic condition.

So CIMB is not exactly misleading as they revised their targets from time to time.

Yes, you are right on this. Based on their annual reports 2018:

Maybank 2.41%
CIMB 2.91%

However, the recent cases in 2019 involve Maybank.

1) Maybank slips on exposure to Hyflux

2) "The initial legal action by sukuk holders had caused RAM Ratings to downgrade Bright Focus’ sukuk six notches down from A1 to BB1 on June 3. Sources said the sukuk holders include Lembaga Tabung Haji, Malayan Banking Bhd , Standard Chartered, Nomura Asset Management, Amundi, Retirement Fund Inc, KAF and RHB."

Extract from: Legal suit pending sukuk revamp

Investors already react before the financial statements are out. Just like when Trump announced the Huawei ban, Inari's shares already tumbled before the bad quarterly earnings came out.

This post has been edited by Yggdrasil: Jul 25 2019, 04:53 PM

I also feel Maybank is just better managed.

2019 Maybank ROE target is 11% (11.4% in 2018)

2019 CIR target is 47% (47.4%in 2018).

They also hv big plans for digital.

But big? is 2Q results.. I will wait for that before jumping in further.

Same, I'll wait for next Q. See what the divvy going forward looks like too before committing.

What's going on btw? Why is it in such a bad downtrend?

Sentiments is playing really strong lately.

I believe it is the common fear that BNM would be cutting interest rates further down. All banks were affected. We'll just have to wait for BNM's announcement to calm the market.

Next week fed meeting too.

Any decisions out from the FOMC meeting will not affect of our economy as we are independent. If there is any movement in our stock market due to their decisions, it will just be a short-term reaction to the movement in NYSE. While generally traders could accept a small cut in interest rate, but a bigger than expected cut would send jitters into the financial markets. Again, any interest rate movement in US will not affect the profitability of our local banks in a big way. We are more concerned about our own OPR which will have direct effect on the margin of our banks.