Kenanga Research maintains Outperform on CIMB despite challenges in Indonesia

Potential overhang well mitigated by adequate bond conversion maturity period.

PETALING JAYA: Kenanga Research maintained its Outperform call on CIMB Group Holdings Bhd as the banking group remains positive of meeting its FY18 targets despite downside risks from domestic and external fronts.

Following a meeting with the group’s management, the research house also reiterated its RM6.85 target price on the counter.

“Management is positive of meeting FY18E targets despite downside risks still lingering from both domestic and external fronts, and confident of hitting those targets,” it said on Thursday.

The targets are an ROE of 10.5%, loans growth of  about 6%, NIMs contraction of 5-10bps, and credit charge of 55-60bps.

It said management expects its loans target of about 6% to be achievable on account of robust growth from the domestic front while loans growth is facing challenges in Indonesia and Thailand. 

“The impending Presidential campaign is stifling loans growth in Indonesia with demand lacking from both corporates and SMEs while infra loans are coming down,” it said.

It noted that retail loans with the exception of the auto sector were growing but the group faces competitive challenge in retaining them.

It also expects Niaga’s FY18 loan target of mid-single-digit to be challenging. 

As for Thailand, the research house noted that growing loans is still challenging as the business environment is not conducive, albeit satisfactory asset quality. 

“On the domestic front, retail loans (especially from mortgages) are resilient with corporates loans sliding and slower drawdown from corporate sector arising from the uncertainties of the business environment post GE14,” it said.

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