PETALING JAYA: Following CIMB Group Holdings Bhd’s Indonesian unit – CIMB Niaga’s – recent financial results, analysts believe that the banking group will do better in the coming quarters, banking on an economic recovery theme.
In a report to clients, AmInvestment Bank’s research unit said CIMB was “one of the systematically important banks that is envisaged to post improved earnings riding on the economic recovery.”
CIMB Niaga, in its latest quarter reported a 23% increase in net profit on a quarter-on-quarter basis but almost 85% lower, on a year-on-year basis largely due to provisions.
AmInvestment said Niaga’s earnings are expected to be stronger in financial year 2021 (FY21) with optimism on the (Covid-19) vaccination programme, which is likely to boost consumer and business sentiment leading to an economic recovery in Indonesia.
“Core fee income is expected to rise and be supportive of Niaga’s non-interest income in FY21, ” it said, adding that management had guided for an improvement in Niaga’s FY21 loan growth and a lower credit cost.
AmInvestment has upgraded its call on the CIMB stock from a “hold” to a “buy”, with a revised fair value of RM5.20 per share from an earlier RM4.10 per share.
Meanwhile, UOB Kay Hian in its note to clients said it sensed growing optimism from the lender’s management on the group’s recovery prospects in 2021 despite the re-imposition of the movement control order.
“The take-up rate for targeted assistance has surprised on the downside even within the B40 group.
“As such, the group could potentially deliver the strongest recovery in 2021, ” the research house said.
On Niaga, UOB pointed out that its net interest margin or NIM had shown signs of stabilisation, and loans requiring targeted assistance had stabilised at 23% as at end-December last year versus 23.5% as at end-third quarter of FY20.
Based on current valuations, it said most of the negatives have most likely already been priced in.
“We advocate investors to take any opportunity to accumulate on weakness as the stock is still trading at 17% below its pre-Covid-19 levels despite having recovered off its Covid-19 share price lows, ” it said.
UOB has maintained its “buy” call on the stock with a target price of RM4.54.
At last look, the stock was trading at RM4.19, valuing the entire banking group at over RM41.6bil.
For the nine months to Sept 30,2020, CIMB reported a net profit of RM979.4mil, significantly lower compared with a net profit of RM3.71bil for the same period a year earlier.
It is scheduled to release its fourth-quarter results this Friday.