PETALING JAYA: Shares in the country’s second largest bank CIMB Group Holdings Bhd soared 31 sen to finish at RM4.90, almost 10% higher than its recent low of RM4.46.
This hefty gain yesterday pushed its price-to-book (P/B) ratio to above one when it was below one just last week.
However, comparatively, the stock remains cheap against its other banking peers.
At RM4.90, CIMB is trading at a P/B ratio of about 1.07 times while Malayan Banking Bhd or Maybank, the largest bank in Malaysia, has a P/B ratio of around 1.5 times and Public Bank Bhd, the third biggest bank here, is trading at 2.4 times P/B.
The lower the P/B – a ratio used to compare a bank’s current share price relative to the value of its assets – the cheaper and more attractive a stock is deemed.
Likewise, in the case of banks, a P/B ratio of less than one is thought of as very compelling.
Dealers said yesterday’s gain in CIMB was mainly buoyed by optimism on the ringgit, which recorded its largest single-day gain in 17 years against the US dollar.
“CIMB is a very liquid stock, so it makes a good play for traders when there is a catalyst like yesterday’s strong climb of the ringgit,” said one dealer.
The stock went up despite international credit agency Moody’s Investors Service downgrading CIMB Bank’s baseline credit assessment (BCA) and adjusted BCA to baa2 from baa1 on Tuesday.
Moody’s said on Tuesday that it expected further pressure on CIMB’s asset quality from slowing operating conditions that will weaken its profitability and ability to improve its capital levels.
Moody’s also pointed out that CIMB’s common equity tier-1 ratio on a consolidated basis declined to 9.6% at end-June from 10.1% at end-2014 as a result of poorer profitability and higher regulatory capital deductions under the Basel III transitional rules.
“The ratio is lower than its domestic peers and the average of Moody’s rated banks in Malaysia, which stands at 11.2%,” it said in a statement.
Over the next 12-18 months, the credit agency expects economic conditions in Thailand and Malaysia (where CIMB has business) to slow, and in turn weaken the banking sector and CIMB Bank’s revenue growth, as well as increase downside risks to its asset quality and credit costs.
“As the bank’s profitability weakens, its ability to generate capital internally will be limited.”
Notably, at the same time, Moody’s has affirmed the bank’s A3/P-2 local and foreign currency deposit ratings and A3 foreign currency senior unsecured debt ratings.
CIMB has traded between RM4.46 and RM6.98 so far this year.
It made a net profit of RM580.12mil in the first quarter ended March 31, after excluding RM202mil of restructuring expenses, while its Indonesian operations reported a weaker set of results.
This compared with a net profit of RM1.07bil in the corresponding period a year earlier.
For its second quarter ended June 30, it reported a net profit of RM639.75mil, a drop of 32.6% from RM949.94mil a year ago, due to higher loan loss provisions mainly from Indonesia.
However, the banking group’s revenue increased 12.5% to RM3.83bil from RM3.41bil.
– The Star
