Kenanga Research is keeping its earnings forecasts for CIMB Group unchanged pending the release of group-level earnings results.
PETALING JAYA: PT Bank CIMB Niaga Tbk, the 92.5%-owned Indonesian subsidiary of CIMB Group
Holdings Bhd, had a strong finish in financial year 2023 (FY23), with results within analysts’ expectations.
However, the bank indicated that FY24 targets and growth trajectory could likely ease.
According to MIDF Research, CIMB Niaga’s FY24 loan growth target has been reduced to 5% to 7% from FY23’s 6% to 8% on expectations of weaker corporate drawdowns.
This is due to several factors, it said. First is the uncertainty in relation to the recent elections in Indonesia.
“As the election results will only be announced in the third quarter of FY24 (3Q24), most corporates would wait until then before seeking funding,” it added.
Second is the high-base effects from corporate loans in FY23. It noted that some corporations had taken advantage of the low cost of funds in Indonesia relative to offshore locations in 2023.
Unfortunately, it said the cost of funds has since risen. Apart from these, analysts expect heightened competition for loans in the retail plus small and medium enterprise (SME) segments.
“But CIMB Niaga seems quite confident that it can weather through – it has shifted its attention to second-tier cities to maintain its consumer and SME growth,” it said.
Lastly, CIMB Niaga is prioritising asset quality over loan growth in line with the wider group’s direction.
The research firm said CIMB Niaga has made great strides in improving its asset quality and its current target of 1% to 1.1% will be CIMB Niaga’s target “stable state” in subsequent years.
In FY23, CIMB Niaga posted a 28% year-on-year (y-o-y) growth to post a core net profit of 6.5 trillion rupiah.
While top line was flattish, excellent cost control and smaller provisions fuelled the earnings growth. While net interest margin (NIM) dipped in 4Q23, MIDF said it should see gradual recovery.
Notably, in FY23, CIMB Niaga saw a huge growth in digital transaction value and digital saving account opening, attributable to several new partnerships.
“Management believes the current rate of growth is sustainable. Most of the new customers are in the retail segment, associated with sticky and cheap current account, savings account.
“A portion of the customer base is linked to SMEs with cross-selling potential.”
Meanwhile, Kenanga Research expects NIM pressures to persist with a lower range of 4.2% to 4.4%.
On the flipside, the group said any downward adjustment to interest rates may be opportunities to expand by diluting deposit rates.
“Credit cost expectations are to remain flattish (1% to 1.1%), having drastically improved from past levels of 1.6% to 1.8%, as the group had focused on sustainable customer acquisitions without compromising asset quality,” said Kenanga Research.
It said management did not discount strategic inorganic growth as an avenue for the long-term viability of the group.
Post-CIMB Niaga results, Kenanga Research is keeping its earnings forecasts for CIMB Group unchanged pending group-level earnings results to be released at the end of this month.
“Maintain target price of RM6.30. Fundamentally, the stock is supported by its regional diversification, especially in terms of non-interest income, which most of its peers lack,” it said.
It added that CIMB’s return to double-digit return on equity could be indicative of its prospects, led by better forward earnings growth of 21% versus the industry average of 8%. Dividend yields are attractive of around 6% in the medium term.
