Why Bumiputra-Commerce Bank Turtle?

I was like others, a skeptic of Nazir's leadership to lead Bumi-Commerce especially he is linked to Najib. Also no thanks to old legacy of Bumiputra Malaysia Finance name proximity tainted with infamous cowboy management and scandals during the 80s. So, I was very skeptical when Nazir acquired Southern Bank and doubted he can integrate Southern Bank acquisition successfully. I was expecting folks in Southern Bank to leave due to clashes of cultures. Believe it or not, I begin to pay more attentions as he successfully integrated that acquisition and turnaround the consumer banking sector. He went a few more steps ahead with his regional aspirations. He integrated a few more acquisitions like CIMB-GK(Singapore stock broking), Niaga-Lippo(Indonesian 5th largest bank) and now trying to turnaround his Thailand banking operation.

If you look at his senior management team, it's full of diversity(Ang-mo, Japanese, Malaysian(Malay, Chinese, Indian), Singaporean, Indonesian, Thai, etc). Most of them are very young (late thirties or early forties). With whole bunch of new blood, a good bet that they can transform the organization to be more innovative, competitive, performance-based(meritocracy) and adaptive to changes.

Now the catalysts.



Catalyst #1: Improving capital market. There is no doubt that you can see very clearly that 63% of the profit contributions are coming from investment banking and treasury. If we are still in 2008, this will certainly makes a lot of people feel jitters. However, the picture is changing as the capital markets are improving. Good chance of double digit growth in this segment in 2010.

Catalyst #2: Banking on economic recovery. Domestic loan growth has been robust, CIMB came in #2 after Public Bank. 9% ytd growth is quite impressive despite of dire situation in the first quarter. Good chance of 12-13% loan growth in 2010.



Catalyst #3: Contribution from CIMB Niaga-Lippo as Indonesia has been experience robust economic growth. Indonesia definitely it's under-penetrated market. With their workforce of close to 12,000. CIMB Niaga is contributing about 19% in Q2 '09 to the group's profit, in 5 years time, CIMB expects this Indonesian unit contribution to the group to be as high as 42%. You should be able to figure out what is that growth rate going to be.

Catalyst #4: Operations improvement(asset quality, cost/income, etc) plus income expansion will lead to higher profitability i.e. ROE 14-15%. Nazir mentioned in his 2008 annual report that he is driving towards 18% ROE over the medium term.

Consensus net profit for 2009 and 2010 is RM 2.3 billion and RM 2.75 billion. This will translate to EPS 0.64 and 0.75 based on outstanding shares of 3,578 mln. Personally, I feel the consensus number has been on the conservative side, they will play the catch-up game later. I feel the earning will be around 0.85 for 2010. At RM 10.24, we are pricing in for 12 times earning for 2010. Earnings surprise plus better sentiments will be able to sell the story to price in 2010 earning as we are almost getting through 3/4 of 2009 already. At 15 times earning, somebody will be willing to pay for RM 12.75, this is my basis of my price target of RM 12.5 - RM 13.0. A lot of CIMB initiatives plus confidence building will take another 2-3 years to flow in, that's why I will buy and sell based on market sentiments now and then.

A bit of diversion as I am trying to wrap up things, if Nazir can successfully leading the team to deliver first class performance(benchmarking Public Bank), this should be a role model that a multi-racial society can put aside religion, race, privilege to compete based on merits, to suceed in the era of globalization. And his brother will have to learn a few tricks from him.