CIMB 1Q net profit exceeds expectations
• BANKING
• Thursday, 02 Jun 2022
Better ops offer catalyst for share price re-rating
KUALA LUMPUR: CIMB Group Holdings Bhd ’s earnings for its first quarter ended March 31, 2022 (1Q22) came in above expectations given the strong top line growth, sustained cost controls and lower provisions, says research firms.
For 1Q22, the banking group posted a net profit of RM1.43bil on the back of RM4.73bil revenue.
Kenanga Research said the quarterly results came in better than expected due to writebacks knocking off its credit cost expectations.
The research house said the group’s profit after tax and minority interests of RM1.43bil made up 32% of its and 29% of consensus full-year estimations.
“The positive deviation on our part was due to lower-than-expected credit costs arising from credit-related writebacks seen during the period,” it added.
However, the research house does not expect any major writebacks in the financial year ending Dec 31, 2022 (FY22).
Post-results, Kenanga Research has raised CIMB’s earnings forecast by 7% and 6% for FY22 and FY23, respectively, to reflect a more optimistic provisioning outlook per management’s expectations.
Similarly, MIDF Research has also increased the group’s FY22 and FY23 earnings upwards by 1% and 11%, respectively, to account for reduced credit provisioning, lower operating expenditure and stronger net interest margins following favourable portfolio rebalancing and regional interest spread outlook.
Meanwhile, it noted that the group’s gross impaired loans ratio fell to 3.44% in 1Q22 from 3.52% in 4Q21.
“The company is still in the process of rebalancing its international portfolio and thus dealing with foreign legacy impaired accounts,” said the research house.
Despite questionable asset quality stemming from foreign loan portfolio reshaping exercises, MIDF Research is “extremely positive” on CIMB’s long-term prospects.
“Now that the double-crediting issue seems to be mostly in the past, the group can look to improved cost-income ratio following its kitchen-sinking exercise as well as favourable regional loan growth and net interest income developments in the medium term.”
As a result, MIDF Research is maintaining its “buy” call on CIMB with a higher target price of RM6.14.
“Our target price is based on an unchanged price-to-book value of 0.95 times as we roll over our valuation to incorporate FY23 book per share,” it said.
However, Hong Leong Investment Bank Research (HLIB Research) noted that it is not yet turning bullish despite the share price weakness, given that CIMB has one of the highest investment percentage concentration in held-for-trading securities with negative fair value through other comprehensive income.
“Besides, the recent fiasco surrounding its duplicate credit transactions does not help market sentiment,” it said.
As such, HLIB Research is keeping a “hold” call on CIMB with a Gordon Growth Model- based target price of RM5.65, based on 0.90 times price-to-book value for FY23.
“This is largely in line to its five-year and sector mean of 0.89 to 0.92 times. We feel the valuation is warranted given its return-on-equity output is similar to pre-pandemic level and industry average,” it said.
Should asset quality continue to hold up in the quarters ahead, RHB Research said the potential lowering of credit cost guidance presents an upside risk to earnings.
“The healthy improvement in underlying operations, we believe, provides catalyst for positive share price re-rating,” it added.
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