CIMB Bank Berhad (CIMB) is expected to remain strong with regards to its earnings delivery and books management.
In its note today (Oct 25), Kenanga said that the most prominent risk lies with unexpected impairments which we reckon could be low in the present climate,” it said.
Meanwhile, the research house highlights that CIMB is one of its 4QCY23 top picks, after CIMB hosted a sell-side 3QFY23 pre-results briefing yesterday.
“Other guidances may be on track to meet expectations. Our assumptions are unchanged post-briefing,” it said.
Kenanga maintains its OUTPERFORM call for CIMB, with GGM-derived PBV TP of RM6.30 (COE: 11.2%, TG: 3.5%, ROE: 10.5%). Post briefing, it also maintains its FY23F/FY24F numbers.
Kenanga noted that one of the key takeaways from the briefing is that loan growth likely as anticipated, with 6%-7% guidance.
“It will likely be met on the group’s expectation that moderate growth will be protracted from supportive economic conditions, albeit likely not as vibrant.
“We opine the group’s target may be conservative having reported a 3.3% QoQ loan growth and 8.3% YoY.”
The research house also said that NIMs pressure is likely to subside.
“CIMB opined that the worst is over with regards to domestic deposits competition, with the group having progressively trimmed product rates to sustain margins.
“On the other hand, Thailand and Indonesian operations may incur higher funding costs as a reaction to the competitive climate there. Offsetting anticipated recoveries in Malaysia, CIMB may still experience a net margin compression on a group level (FY23 target at 5−10 basis points (bps) decline).
Meanwhile, Kenanga notes that forex volatility not a concern, amidst ongoing fluctuations of the ringgit, CIMB believed the overall impact may be contained as volatility could still drive trading and forex gains.
“Mitigating this may be overall lower fees, which may also experience sequential decline given 2QFY23’s lumpier recording of NPL sales as well as certain wholesale fee income.
“Higher expenses likely in tandem with top line. The group (CIMB) continued to expect operating costs to further rise. Notwithstanding the recent union wage adjustments from collective agreements,” it said.
It added the group has also been investing more heavily into marketing and establishment costs to keep up with stronger business activities.
However, the research house also said that CIMB’s cost-income ratio may still remain flattish at c.46.5% per last guidance, indicating cost control is still in check.
Kenanga added there appears to be fewer signals which would trigger the group to further tighten its asset quality management.
“As business climate normalises (ex-Covid relief measures), GIL levels are likely to remain contained with overlays still providing sufficient buffers against unexpected headwinds.
“Additionally, the group may not be exposed to recently troubled names in the airline industry, which could reduce the likelihood of unexpected topping up of provisions.”
