ANALYSTS are mixed on CIMB Group Holdings Bhd following its Indonesian subsidiary CIMB Niaga reporting 1QFY20 results which are largely within expectations.
TA Securities has maintained its forecast on CIMB Group pending its upcoming 1QFY20
results announcement and further guidance from management.
“The current operating environment, we opine, could also derail the group’s medium-term
Forward 23, which includes scaling up contributions in Indonesia by capturing new market share and reigniting growth engines,” the research house said.
It noted that CIMB Niaga results came in within its expectations at 23%.
Net profit stood at Rp944 bil which translated into an increase of 9.2% qoq and 11.8% yoy, with the yearly improvement underpinned by higher operating income (+3.7% yoy) and decline in operating expenses (-2.7% yoy).
ROE broadened to 10.58% vs 9.48% a year ago. Capital Adequacy Ratio (CAR) remained strong at 19.39% post IFRS/PSAK71 implementation.
“Consumer banking-led loan growth net interest income (NII) grew 1% yoy (-0.9% qoq) as the 3.3% yoy increase in loans was offset by net interest margin (NIM) which was compressed by 26 bps yoy. Loan growth was underpinned by broad-based growth in consumer banking (9.8% yoy which was led by mortgages (11.6% yoy), credit cards (8.9% yoy), auto loans (6.2% yoy) and personal loans (3.8% yoy),” said TA Securities.
Corporate banking loans, which accounted for 38% of CIMB Niaga’s total loan book, rose 7% yoy. Meanwhile, NIM declined, driven by several successive rate cuts in 2019. Non-NII grew at a stronger pace pace of 11.5% yoy as the decrease in fee income (18.7% yoy) was cushioned by steeply higher income from foreign exchange (FX) and derivatives (114.8% yoy ), gain from management services (MS, 28.7% yoy) and bancassurance (21.8% yoy). Also supporting earnings, total operating expenses contracted by 2.8% yoy.
On the back of positive Jaws ratio, which demonstrates the extent to which the income growth rate exceeds the expenses growth rate, CIMB Niaga’s cost-to-income (CTI) ratio improved to 47.8% from 50.9% a year ago.
Provision expenses slipped 2.1% qoq but rose 8.7% yoy. The NPL ratio improved slightly yoy to 3.03%. However, management guided that 2Q will be more challenging as headwinds start gathering pace. As such, asset quality will become the primary focus as more and more customers have been requesting for loan rescheduling and restructuring. Credit cost, which was initially guided to be between 160 and 180 bps, could deteriorate to 230 bps.
TA Securities said based on an implied PBV of circa 0.69x based on the Gordon Growth Model, TP for CIMB is maintained at RM3.90. Its buy recommendation on CIMB is largely premised on the stock’s attractive valuations, as the second-largest bank by asset size in Malaysia, trades at a discount to industry’s average PBV of 0.76x.
Meanwhile, Affin Hwang has reiterated its sell call on CIMB Group with a TP of RM2.60, which is based on 2020E target P/BV of 0.46x (2020E ROE of 6.2% and cost of equity of 8.6%). It maintained its 2020-22E earnings, in which it has factored in a recessionary outlook for the group in 2020E, including flat loan growth, NIM at 2.3% and credit cost at 75 bps.
At the noon close, CIMB shares were traded at RM3.44, unchanged from Friday’s close with 4.03 million shares changing hands. — May 12, 2020
