CIMB Group on the mend despite 3Q loss

Its 3Q21 core results were above expectations, while the write-off of goodwill will assist in a marginal uplift of future RoE 


MAYBANK Investment Bank Bhd (Maybank IB Research) has maintained its ‘Hold’ call on CIMB Group Holdings Bhd with a revised target price (TP) of RM5.40 from RM5.50 previously. 

Its analyst Desmond Ch’ng noted CIMB Group’s third quarter ended Sept 30, 2021 (3Q21), core results were above expectations, while the write-off of goodwill will assist in a marginal uplift of future return on equity (RoE). 

“We raise CIMB Group’s financial year 2021 (FY21) net profit forecast by 8% but cut FY22 earnings by 8% to factor in Cukai Makmur. 

“WetrimourTPby10sento RM5.40, pegging on an FY22 price-to-book value target of 0.9 times, supported by an FY22 RoE of 8.5%,” he wrote in a research report on the company recently. 

For the cumulative nine months ended Sept 30, 2021 (9MFY21), CIMB Group’s net profit jumped 251.3% to RM3.44 billion from RM979.45 million in 9M20, supported by higher operating income, strong cost containment and significantly lower provisions, with improvements seen across all CIMB Group’s segments and markets. 

Revenue for the period rose by 21.13% to RM14.93 billion from RM12.32 billion previously.

Ch’ng noted the results were above expectations at 88% and 86% of Maybank IB Research’s full-year forecast and consensus forecast, mainly on better-than-expected credit costs.

He stated CIMB Group’s percentage of loans underpayment repayment assistance was 21% of total loans as at the end of October 2021 and for Malaysia alone, the percentage was 27%. 

“Management now guides for credit cost of 75 basis points (bps) to 85bps for FY21 versus 80bps to 90bps previously, which implies a higher credit cost of 80bps to 100bps in 4Q21. 

“We lower our FY21 credit cost to 85bps from 90bps, and maintain 55bps for FY22,” he said. 

He noted CIMB Group’s management identified about RM380 million of cost savings thus far, out of its target of RM300 million to RM500 million. 

The Maybank IB Research analyst noted that having written off the goodwill of RM1.22 billion for an estimated 20bps uplift in RoEs, further write-offs may not be forthcoming as initially expected. 

Despite posting a strong 9MFY21, CIMB Group slipped into the red after posting a net loss of RM100.59 million for 3Q21 from a net profit of RM194.44 million in 3Q20, due to the impairment of CIMB Thai goodwill amounting to RM1.22 billion in the current quarter. 

Quarterly revenue dropped marginally by 0.42% to RM4.4 billion from RM4.41 billion in 3Q20. The goodwill impairment indicator was triggered as the operation and earnings of CIMB Thai Bank Public Co Ltd, a subsidiary of CIMB Bank, continue to be affected by the prolonged impact of the Covid-19 pandemic in Thailand.