Analysts mixed on CIMB’s 3Q earnings

TheEdge Wed, Nov 29, 2017 11:30am - 3 years ago

KUALA LUMPUR (Nov 29): CIMB Group Holdings Bhd's 11% rise in net profit in the third quarter ended Sept 30, 2017 (3QFY17) prompted mixed reviews from analysts on the stock.

CIMB’s net profit grew 11% to RM1.13 billion in 3QFY17, from RM1.02 billion a year earlier, while revenue rose to RM4.42 billion, from RM4.12 billion previously.

For the cumulative nine-month period ended Sept 30, 2017 (9MFY17), CIMB said net profit increased to RM3.41 billion, from RM2.71 billion a year earlier. Revenue was higher at RM13.11 billion, versus RM11.75 billion.

In a note today, Affin Hwang Capital analyst Tan Ei Leen said CIMB’s 3QFY17 net profit of RM1.13 billion grew by 11% year-on-year (y-o-y), but only 2.7% quarter-on-quarter (q-o-q), while 9MFY17 net earnings were in line with the research house and consensus estimates.

Tan said though 9MFY17 pre-provisioning operating profit (PPOP) saw a favourable growth of 18% y-o-y (consumer, wholesale banking), the overall 9MFY17 provisions were still elevated and remained flat y-o-y (owing to unexpected provisions which hit Thailand, auto and small-medium enterprise sectors in Indonesia, as well as the oil and gas sector in Singapore in 3QFY17).

“We believe that 4QFY17 may see some downside risk on earnings, due to net interest margin (NIM) pressure and provisions,” Tan said.

Affin Hwang retained its “Hold” call on CIMB shares, with an unchanged price target of RM6.65, based on a target price to book value of 1.25 times on CY18 net book value per share (underlying assumptions: 2018E 9.2% return on equity and 8.4% cost of equity).

Meanwhile, Hong Leong Investment Bank (HLIB) said CIMB 3QFY17 net profit was stronger, lifting 9MFY17 net profit to RM3.4 billion, increased by 26% y-o-y, which is slightly above HLIB and consensus at 81.5% and 79% respectively.

“We believe that CIMB will finally benefit from its T18 strategy that focuses on enhancing cost-to-income (CTI), common equity tier (CET) and ROE.

“These initiatives would ensure CIMB to post decent earnings growth. Additionally, we expect MFRS9 to be less severe to CIMB, as the disposal of Bank of Yingkuo will contribute swiftly to the CET1,” said its analyst Khairul Azizi Kairudin.

As such, HLIB upgraded CIMB to “Buy”, given recent share price retracement with an unchanged target price of RM6.90.

At 10.45am, CIMB shares rose one sen or 0.17% to RM5.94, with 1.11 million shares traded, for a market capitalisation of RM54.71 billion.

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