Decent fourth-quarter results likely for CIMB

PETALING JAYA: CIMB Group Holdings Bhd is expected to deliver “decent” fourth-quarter results, despite its higher credit costs sequentially.

Maybank Investment Bank (Maybank IB) Research forecast CIMB’s earnings for the fourth quarter of 2023 (4Q23) to be higher on a year-on-year basis, given that credit cost had been particularly high in 4Q22 at 70 basis point (bps).

“Credit cost averaged 32bps in the first nine months of 2023 (9M23) and this compares against our assumption of 40bps for the financial year of 2023 (FY23), which thus implies a 4Q23 credit cost of 48bps,” it said in a note.

The group is scheduled to announce its 4Q23 results on Feb 29. Its majority-owned bank in Indonesia, CIMB Niaga, will announce its results about a week earlier on Feb 21.

Maybank IB Research predicted CIMB’s credit cost levels to be sequentially higher in 4Q23, due to higher provisions in Thailand and Malaysia following a low base in 3Q23.

“Nevertheless, this has already been factored into our estimates, given that we have assumed 40bps credit cost in FY23, against an average of 32bps in 9M23.

“Conservatively, we have maintained elevated credit cost assumptions of 40bps into FY24 as well,” added the research house.

In a separate note, RHB Research also said CIMB’s credit cost could rise sequentially compared to 2Q23.

However, it pointed out that CIMB’s delinquencies continued to remain stable, while gross impaired loans are expected to improve quarter-on-quarter.

CIMB’s upcoming fourth-quarter results could see net profit soften quarter-on-quarter partly due to seasonality, but year-on-year growth will likely be decent.

“That said, given its strong 9M23, the full-year numbers should meet estimates.

“More importantly, we are watching out for 2024 guidance, especially if the 2024 return on equity target of 11.5% to 12.5% is reaffirmed,” stated RHB Research.

The research house noted that CIMB guided for healthy loans growth momentum in 4Q23 thanks to the consumer segment in Malaysia and non-retail segment in Indonesia and Singapore.

It added that seasonal yet a more rational deposit competition is underway.

CIMB saw retail deposit campaigns come through in September and October 2023, followed by non-retail campaigns in November and December 2023.

“Hence, 4Q23 net interest margin (NIM) will likely be under pressure. Flipside, CIMB believes this is largely the usual seasonal, year-end competition rather than a deterioration in underlying deposit competition.”

Maybank IB Research and RHB Research have a “buy” call on CIMB.

However, Kenanga Research downgraded its view on CIMB to “market perform” yesterday.

The downgrade was because Kenanga Research opined that CIMB’s merits could have been fairly priced following the reemergence of foreign shareholders into Malaysian equities.

This in turn will stabilise CIMB’s risk-to-reward.

“The group looks to close its FY23 with few surprises, supported by stable delivery in NIMs and asset quality. “We continue to anticipate CIMB to generate strong earnings, backed by its growing regional footprint but its positives could have been fairly captured in the recent price rally,” it said.

Looking ahead, Kenanga Research said CIMB may require deeper planning to achieve further cost savings.

Following the completion of CIMB’s three-year cost take-out initiatives of RM1.2bil, the group had previously indicated that it would explore further opportunities to improve its cost efficiency.

“At the moment, it appears that such efforts may only crystallise by FY25 as the group would likely require more time to identify further sustainable measures,” it said.

Meanwhile, MIDF Research said that CIMB’s FY24 prospects remain strong, with no major negative concerns.

“The group believes that deposit competition in Malaysia will improve by the first half of FY24 (1H24) – but is less certain on the quantum of improvement. So far, competition has remained within expectations.

“The group observes stronger corporate drawdowns in 2H24, in line with potential government policies and infrastructure projects rolled out in Malaysia.

“CIMB has recently undergone a streamlining of its wholesale businesses, to further enhance its cross-sell ability.

“Management thinks this could draw out more higher volume deposits per loan – we see also potential benefit from a cost of fund perspective,” it added.

MIDF Research has a “buy” call on CIMB, with a higher target price of RM6.82 from RM6.62 previously.