CIMB Group Holdings Bhd is said to be hiring Rafe Haneef from HSBC Amanah Malaysia Bhd to lead its Islamic banking unit.
KUALA LUMPUR: Affin Hwang Capital Research forecasts a more predictable outlook for CIMB Group
in 2017 when compared with the bumpy years in 2014-2016.
It said on Tuesday it expects the banking group's asset quality to stabilise and as the group focuses on strategies to achieve the T18 operating targets.
“Re-rating catalyst include a sharp improvement in operating expenses. Maintain our Hold rating, with price target unchanged at RM5,” it said.
Affin Hwang Capital Research said CIMB Group’s management reiterated that impaired loan allowances in 2016E will remain elevated (RM1.75bil as at September 2016, +10.5% on-year) while in 2017-18, it is expected to remain at current levels and unlikely to see a significant pullback.
“In terms of credit cost, 2016E may hover around 70bps while in 2017-18E, we currently project a potential decline to 55bps (RM1.8bil to RM1.9bil per annum).
“CIMB’s management had given some guidance that they do not foresee signs of potentially more significant deterioration in asset quality in 2017-18 across the group,” it said.
The research house said CIMB’ management indicated that near term shortfall could be made up via the transfer of retained earnings into regulatory reserves and that the bank’s balance sheet could take a potentially higher level of provisioning.
Affin Hwang Capital Research said the cost-to-income ratio (CIR) target of 50% remains CIMB Group’s long term target.
As at 9M16, the CIR stood at 54.6% vs. 56.2% (on a normalised basis) in 9M15. The potential partnership with China Galaxy Securities could help the CIMB Group lower its operating expenses, with an absolute reduction of approximately RM600mil to RM700m per annum (which translates into a 100bps impact to the CIR).
“We reiterate our Hold rating on CIMB Group, with our price target unchanged at RM5 (based on a 0.95 times 2017E price-to-book value multiple, with return on equity assumption at 9.2% and cost of equity at 9.6%).
“In our view, the expectation of an earnings recovery in 2016-17E has been priced-in, though we believe that the impact of operational cost-savings (RM500mil per annum) will be more apparent in 2017E, while credit cost should gradually decline as asset quality remains intact. Key downside risk would include the IFRS 9 adoption while upside risk is significant cost-savings,” it said.
Limited time offer:
Just RM5 per month.
