Kenanga Research has maintained its OUTPERFORM call on CIMB Group Holdings Bhd but lowered its target price slightly to RM8.35, after the banking group’s first-half FY2026 results came broadly within expectations despite foreign-exchange headwinds and pressure on net interest margins (NIM).
CIMB recorded a 1HFY26 net profit of RM3.86 billion, representing 46% of Kenanga’s and 48% of consensus full-year forecasts. Headline earnings slipped 0.2% year-on-year, although Kenanga estimated that profit would have grown 4.5% on a constant-currency basis.
The group declared an interim dividend of 19.65 sen per share, translating into a payout ratio of 55.4%, broadly unchanged from 1H25 and in line with expectations.
Kenanga said stronger non-interest income (NOII) helped cushion weaker net interest income (NII), with NOII improving 3.1% on contributions from wealth income and treasury client sales. This largely offset a 2.6% contraction in NII.
Wealth income, which accounted for 19% of NOII, grew 14% year-on-year, while the Touch ‘n Go group saw its profit nearly triple to RM89.6 million.
Despite weaker revenue, CIMB kept its cost-to-income ratio at 46.2% in 1H26, unchanged from the corresponding period last year.
NIM Outlook Turns More Cautious
Margins remain a key area of concern, with overall NIM declining four basis points quarter-on-quarter. Malaysia recorded a six-basis-point contraction and Singapore three basis points, partially offset by a two-basis-point improvement in Indonesia.
Kenanga said CIMB had adopted a more cautious NIM outlook, with margins being the only metric for which management revised its guidance.
In Malaysia, execution of the group’s current account savings account (CASA) and fixed-deposit strategies will be important in keeping margins stable.
The CASA ratio eased slightly quarter-on-quarter to 32.3% in Malaysia and 71.7% in Indonesia.
Indonesia presents another challenge following rapid interest-rate increases, which have made it more difficult for CIMB to pass higher funding costs through to loan pricing, particularly within business banking.
Nevertheless, Kenanga believes CIMB has some room to mitigate the pressure. The liquidity coverage ratios of CIMB Bank and CIMB Islamic have been rising, giving the group additional flexibility to redeploy short-term liquidity into higher-yielding assets.
As a result, the research house believes CIMB could avoid the lower end of management’s revised NIM guidance.
Loan Pipeline Remains Strong
Underlying lending momentum also remains supportive.
CIMB’s loans grew 5.1% year-on-year on a constant-currency basis, compared with reported growth of 2.0%, with Kenanga noting that the group continues to have a strong loan pipeline.
The research house expects CIMB to meet its asset and loan growth guidance despite margin pressure.
Asset quality, meanwhile, remained relatively steady. CIMB’s gross impaired loan ratio eased quarter-on-quarter to 1.6%, although loan-loss coverage slipped slightly to 99.5%.
However, provisions increased during the second quarter.
Net credit cost rose to 38 basis points in 2Q26, bringing the first-half level to 34 basis points, partly reflecting a reallocation of provision overlays towards accounts with Middle East exposure.
Kenanga estimated that credit costs would have been 33 basis points in 2Q26 and 32 basis points for 1H26 without a change in accounting treatment for CIMB’s Indonesian multi-finance business.
The accounting change resulted in a RM60 million impact on net credit cost, which Kenanga described as a timing issue because proceeds from vehicles that are subsequently sold are eventually recognised as other income.
Kenanga Raises Credit Cost Forecast
Following the results, Kenanga adjusted its FY26 and FY27 earnings forecasts to incorporate higher credit costs.
The research house now assumes 25 basis points of credit costs, compared with its previous forecast of 18 basis points, which it said was increasingly unlikely to be achieved. CIMB’s guidance stands at between 25 and 35 basis points.
Kenanga nevertheless maintained its assumption for a five-basis-point year-on-year NIM decline, despite management guiding for margins ranging from flat to as much as a 10-basis-point contraction.
Its sensitivity analysis suggests that an additional five-basis-point deterioration in NIM could reduce earnings by a further 3%.
Touch ‘n Go Potential Adds Valuation Support
Kenanga’s revised RM8.35 target price is based on a Gordon Growth Model-derived price-to-book value of 1.11 times, compared with 1.12 times previously, based on FY26 forecast book value per share of RM7.16.
The valuation incorporates a 10.7% cost of equity, 3.5% terminal growth and 11.4% return on equity, slightly below the previous 11.5%.
Kenanga also applied a 5% premium reflecting CIMB’s four-star ESG ranking and progress in green financing.
The research house expects dividend yields of more than 6%, including distributions associated with CIMB’s capital return plan.
Potential value unlocking from CIMB’s investments could provide another source of support. Kenanga highlighted the possibility of an eventual initial public offering of Touch ‘n Go Digital, although it cautioned that the timing of such an exercise remains uncertain.
Near-term rerating potential, however, could be constrained by rising Malaysian Government Securities yields.
Kenanga noted that investment securities represent about 29% of CIMB’s assets, relatively high compared with peers, meaning the rise in MGS yields during 3Q26 could complicate trading income performance.
Despite those risks, the research house continues to favour CIMB’s underlying loan growth, liquidity position, dividend prospects and potential value-unlocking opportunities, supporting its OUTPERFORM recommendation and revised RM8.35 target price.
