HLIB: CIMB’s 2Q19 to meet expectations

The group, however, warns that its CIR and RoE targets may be difficult to achieve, despite being on track for now


HONG Leong Investment Bank Bhd (HLIB) expects CIMB Group Holdings Bhd’s second quarter of 2019 (2Q19) results to fall within expectations, but warned of the challenges in key measurements and the absence of “material positive vibes”.

The investment bank in a note said CIMB reiterated its 2019 guidance for 6% to 7% loan growth, compression of five to 10 basis points (bps) in net interest margin (NIM), flattish cost-to-income ratio (CIR) of circa 53%, 40bps to 50bps net credit cost and return on equity (RoE) of 9% to 9.5%.

“However, the group warned that its CIR and RoE targets may be difficult to achieve, despite being on track for now. (Our) forecasts are unchanged since there were no material positive updates from the briefing. Also, underlying operational trends in 2Q19 are performing up to expectations,” HLIB said.

Malaysia’s second-largest bank by assets held a pre-2Q19 results briefing recently.

The research house kept its ‘Hold’ call on the stock with a target price of RM5.45 (current price: RM5.17), noting the management’s guidance for one-off items in 2Q19, including a RM200 million disposal gain from the process of its Malaysia stockbroking business transfer.

Loan growth momentum remained robust for the group in 2Q19 after a 7.6% expansion in 1Q19, as CIMB is still taking market share from its peers — though slowing down.

In Indonesia, it maintains its acceleration (1Q19: 4.9%) and sees an improving auto loans book in the second half of 2019.

“There will be a slight 2bps to 3bps hit to NIM, no thanks to the recent Overnight Policy Rate (OPR) cut. However, the deposits competition appeared to have stabilised,” HLIB said.

Non-interest income is poised to improve in 2Q19 on higher trading and investment gains, although fees from deals stayed subdued despite a healthy pipeline, while fee income from the likes of unit trusts continued to moderate.

“Besides, the management expects another OPR cut in 2H19,” the research house added.

CIMB is expected to release its 2Q results on Aug 29, while PT Bank CIMB Niaga Tbk targets to release its results on Aug 13 or Aug 14. Last week, CIMB Thai Bank pcl said its net profit for 2Q19 plunged 45.1% to 104.93 million baht (RM13.98 million) from 191.23 million baht a year ago on lower operating income and higher operating expenses.

Kenanga Investment Bank Bhd kept its ‘Outperform’ rating on the bank, with the understanding that the lender will see moderation in fund-based income, although its bottomline is poised to expand due to writebacks.

“We further understand that capital market activities are picking up with loans target of 6% to 7% achievable, driven by resilient household and pick-up from CIMB Niaga.

“Topline is expected to be driven by Islamic financing and fee-based income, but we expect fund-based income to moderate, primarily due to margin pressure. Reiterate ‘Outperform’ with a raised target price of RM6.45 (from RM6.25),” the research firm said.

CIMB’s net profit fell 9% to RM1.19 billion in 1Q19 from RM1.31 billion in 1Q18 on lower operating income and higher expenses, while revenue slid to RM4.17 billion from RM4.3 billion last year.

It warned that the rest of the year will remain to be challenging amid fresh trade tensions and other macroeconomic headwinds, coupled with tougher operating conditions in its major markets, although it is confident that Forward23 — its new strategic growth plan — will accelerate growth and future-proof the group.

Shares of CIMB were unchanged at RM5.17 as at 5pm yesterday, valuing the group at RM50.29 billion.