PETALING JAYA: CIMB Group Holdings Bhd
’s upcoming fourth quarter financial year 2024 results (4Q24) are likely to see a contraction in net interest margin (NIM) and softer non-interest income (NOII).
On the other hand, net credit cost is expected to hold steady.
These are some of the key takeaways from CIMB pre-closed period conference call where discussions were around its broad operational trends in 4Q24.
Kenanga Research said guidance on NIMs and NOIIs does not come as a surprise due to the higher base in 3Q24.
“We expect CIMB to continue to focus on value and earnings sustainability over volumes and market share in the near term, to be unveiled from its new long-term strategy plans,” the research firm said maintaining its “market perform” call and RM7.60 a share target price on the stock.
Shares of CIMB closed at RM8.02 last Friday, down about 1% since the start of the year.
Fundamentally, Kenanga Research said the stock is supported by its regional diversification, especially in terms of NOII which most of its peers lack.
“CIMB’s return to double-digit return on equity (ROE) could be indicative of its prospects while offering attractive dividend yields (circa 6%) in the medium term.
“That said, its current share price indicates that it had already fully priced in financial tear 2024 (FY24) ROE of 11.5% which we have applied in our valuations.”
Referencing the group’s FY24 ROE target of 11% to 11.5%, the research firm said 4Q24 earnings could range between RM1.54bil to RM1.88bil – about 7% to 24% softer than 3Q24’s RM2.03bil net profit but outperforming 4Q23’s RM1.72bil.
Leading this would be an anticipated 4Q24 NIM contraction with deposit competition keeping funding cost in Malaysia lofty.
Meanwhile, PT Bank CIMB Niaga Tbk’s navigation around the 25 basis points (bps) cut in September last year by Bank Indonesia’s policy rate coupled with tighter liquidity scene there could also translates to more aggressive deposit rates.
Looking forward, its Malaysian operation is expected to normalise although Indonesian markets are once again adjusting to another 25 bps cut in Jan 15, 2025, which is likely to press margins there further.
The research firm notes that CIMB’s FY24 NIMs guidance remains stable at plus at plus 5% bps from FY23’s 2.22%.
On its exposure to the shaky data centre landscape, Kenanga notes that CIMB has limited exposure in the space with only RM1.5bil in loans approved so far, which less than 1% of total Malaysian loans.
This arose from their previous stance to not overly expand into ongoing developments, citing preference for higher risk-adjusted return of capital portfolios (RAROC) over volumes, the research firm added.
Meanwhile, Hong Leong Investment Bank Research said with CIMB’s risk-reward profile is now skewed favourably to the upside, it has upgraded the stock to a “buy” with a higher target price of RM9.20 (from RM8.80) based on 1.26 times FY26 price-to-book value.
“In order to maintain its ROE at current elevated levels, CIMB hinted that its upcoming refreshed strategy will continue to focus on the high RAROC segments, particularly in Indonesia and Singapore, along with its commercial banking franchise.
“Also, the Thai business will be under review as part of its capital allocation strategy this year, with its a low ROE output of 6%. “
It noted the banking group’s data centre pipeline is intact and clients are still committed to roll out their initial plans.
