PETALING JAYA: CIMB Group
Holdings Bhd remains optimistic that it will be able to meet its 11% to 11.5% return-on-equity (ROE) target, driven by improving asset quality trends, strong non-interest income, more rational deposit competition and disciplined loan pricing, which will support net interest margin recovery.
In a pre-closed period conference call, analysts noted that the banking group’s management sounded optimistic and that the broad operational trends in the second quarter of 2024 (2Q24) are up to expectations.
“We see upcoming 2Q24 profit after tax and minority interest easing slightly quarter-on-quarter as trading and foreign exchange income softens, but first-half financial year 2024 results should meet our and consensus expectations, with ROE tracking the 11% to 11.5% guidance,” said RHB Research in a report.
According to the research firm, CIMB is its sector preferred stock pick.
“Its focus on profitable growth is helping drive ROEs higher amid robust capital generation. Investors are likely to be well rewarded with a re-rating in valuations and higher capital returns.”
Among the key takeaways from the conference call is that loan demand has generally been positive across the segments and the bank is keeping the 2024 group loan growth target of 5% to 7%.
“That said, CIMB continues to stay disciplined on loan pricing and has walked away from deals due to pricing being too fine, especially in the corporate segment.
“The bank thinks themes such as data centres, renewable energy and rollout of initiatives under the various master plans should be positive for loan demand ahead,” added RHB Research.
In the discussion, CIMB also flagged out the importance of preserving its client franchise.
The bank also does not expect any asset quality issue, pointing out that delinquency trends for retail in Malaysia and Indonesia have been stable to slightly better.
While CIMB had earlier seen some signs of pressure for local small medium enterprises, this had eased in 2Q24. For the corporate portfolio, management has not noted any major names going through stress or potential downgrades.
In Thailand, however, delinquencies for its consumer finance business remain elevated but are improving. Despite a fairly benign landscape, CIMB is looking to keep its 30 basis points (bps) to 40bps credit cost guidance to ensure adequate coverage for its portfolio, said RHB Research, which kept its “buy” call on the stock with a net RM8 a share target price (TP), from RM7.60.
However, Hong Leong Investment Bank (HLIB) Research maintained its “hold” call, but with a higher TP of RM7.70 (from RM6.80), after recalibrating price-to-book (PB) valuation to 1.09 times financial year 2025 earnings, from 0.96 times before.
HLIB Research said it decided to raise its PB multiple closer to plus one standard deviation above the five-year pre-pandemic mean level, to account for re-rating from potentially stronger foreign buying interest and stronger ROE generation.
“However, we do not advocate chasing the stock especially when the share price has already performed very well with limited upside,” said HLIB Research.
