Affin Hwang upbeat on CIMB’s prospects

CIMB rose 12 sen to RM5.06 and nudged the KLCI up 1.73 points at midday

KUALA LUMPUR: Affin Hwang Capital Research expects a progressive improvement in CIMB Group’s net profit each quarter and remains optimistic on the group’s prospects.

The research house said CIMB’s earnings recovery would be on track in 2017 with CIMB Niaga taking the lead, as asset quality stabilises while at the group level, the focus remained on achieving the T18 operating targets.

“Other re-rating catalysts include operational synergies from the joint venture with China Galaxy and a revival of capital market activities,” Affin said, adding that it has maintained its “buy” call on CIMB with unchanged price target of RM6.30.

Affin said CIMB’s management’s guidance remained relatively unchanged (from the last quarter), i.e. no material increase in non-performing loans while CIMB Niaga’s asset quality was gradually recovering with credit cost expectation to ease from 263 basis points as at 4Q16 by each quarter and potentially settle at below 200 basis points by 4Q17, with the average for 2017 at circa 200-220 basis points.

“We concur with management’s view that CIMB Niaga may have to go through a few more quarters before seeing provisioning normalised (100-150 basis points),” it added.

Affin has an optimistic view on a structural recovery in the Indonesian coal-mining sector although CIMB’s management remained conservative on a coal-sector NPL writebacks in its books.

“Overall, we have a more optimistic view on CIMB’s prospects in 2017 vis-à-vis management’s expectations such as a 5-10 basis points net interest margin (NIM) compression while our 2017E loan growth target is in-line with management’s 7%,” Affin said. 

It explained that its main assumptions on 2017-19E earnings were fundbased income growth of 5-6% per annum on higher loan growth of 6.3-7% with NIM steady at 2.63-2.66% and a potential decline of 29% year-on-year in 2017E’s impaired loan allowances.