Long-term view for CIMB Group


CIMB – the second largest by asset size in the country – like most banks, has seen its profit hit amid the Covid-19 pandemic which has slowed down demand for new loans, and forced banks to set aside more than the normal amount of funds for doubtful debts.

PETALING JAYA: A long-term view is needed for investors wanting to put their money into CIMB Group Holdings Bhd as growth indicators will take time to show meaningful improvements.

The lender – the second largest by asset size in the country – like most banks, has seen its profit hit amid the Covid-19 pandemic which has slowed down demand for new loans, and forced banks to set aside more than the normal amount of funds for doubtful debts.

UOB Kay Hian’s research unit said it expected CIMB’s return on equity, a leading indicator of financial performance, to recover in 2022 and assuming investors were to take that view, the stock could reflect a longer-term fair value of RM5.60.

At last look, it was trading at the RM4.17 level.

In a report, UOB Kay Hian also pointed out that among CIMB’s 2021 key performance targets was its 4%-5% loans growth target that it said “could be slightly challenging” to achieve, as economic activities in the first half of 2021 were likely to remain subdued.

“Our loans growth forecast has factored this in, as we have pencilled a conservative 3% loans growth for 2021, ” it told clients.

Still, it noted that the banking group was able to deliver a 5.5% year-on-year reduction in its 2020 operating expenditure, on the back of various cost-rationalisation initiatives, notably a reduction in headcount.

“Looking ahead, the group remains committed to extract a further RM300mil-RM500mil in cost rationalisation over 2021-2022.”

For now, UOB Kay Hian has assumed a flattish net interest margin (NIM) trend for this year.

Meanwhile, Hong Leong Investment Bank’s (HLIB) research arm in its report to clients on CIMB said on a net basis, loans growth was seen to be muted.

“In its upcoming quarterly results, we will likely see NIM widening, muted loans growth and better trading income.

“Although it is trading at an attractive price point and its foreign shareholding level is at a decade low, CIMB is still a riskier investment proposition among large-sized banks, ” it said.

HLIB noted that first-quarter 2021 delinquencies for unsecured loans in Indonesia, one of its main markets beside Malaysia, had increased but it was still within CIMB’s expectations.

In Malaysia, its non-retail portfolio has also seen some deterioration.

“That said, the RM1.5bil preemptive provisioning made in financial year 2020 (FY20) is seen to be largely adequate for now, ” HLIB noted.

In the same report, the research house, which has a target price of RM4.50 on CIMB, said on the whole, it was keeping its original profit forecasts for the bank as the underlying operational trends in first-quarter 2021 were performing to expectations.

On future cost savings, it believes this will come primarily from natural job attrition, hiring freeze and lower capex spending and marketing expenses.

“There could be potential for a goodwill write-off this year and next, but it would not be overly significant causing CIMB to swing into the red.”

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