For CIMB Group Holdings while the operating environment remains challenging, much of the negatives have been built into the forecasts and there is room for credit costs to surprise positively, says investment house Maybank IB. The FY23/24E ROE estimates lag management’s targets and there is room for a re-rating should these targets be met. The house maintains a BUY call on CIMB with an unchanged TP of MYR6.50.
Challenging environment built into forecasts
The operating environment remains fairly challenging amid moderate loan growth and likely slower HoH non-interest income growth in 2H23. Nevertheless, Maybank Ib believes that many of these challenges have been built into the forecasts. Positively, net interest margins appear to have troughed while there is room for credit cost to surprise positively amid
stable asset quality.
Room for credit costs to surprise positively
The outlook for impaired loans remains relatively benign, though management remains cautious amid headwinds in global macro conditions. COVID-related overlays in Malaysia have predominantly been reallocated, but remain largely intact in Thailand and Indonesia. Management is comfortable with its provision levels for loans under repayment assistance,
more so for corporate/commercial loans. There is room, we believe, for credit costs to surprise positively. The current credit cost assumption of 50bps for FY23E is at the high end of management’s 40-50bps guidance, while our 40bps estimate for FY24/25E is also a fairly elevated assumption.
Room for re-rating if ROEs surpass expectations
Management remains comfortable with and committed to its ROE target of 10.2%-11% for FY23 (1H23: 10.6%). The FY23E ROE of 9.8% is lagging management’s target. Moving into FY24, management has an ROE target of 11.5-12.5%, for which our estimate of 10% is also lagging. Positive surprises here would undoubtedly provide the basis for a valuation upgrade
for the stock
