KUALA LUMPUR – CIMB Group Holdings Bhd’s shares slipped about 2.9% or 11 sen to RM3.72 after reporting on Friday a drop of more than 80% in its third quarter (Q3) net profit.
At 10.45am, more than 18.73 million shares had changed hands.
Its profit shrank to RM194.44 million in the quarter ended September 30, 2020, from RM1.01 billion in the same quarter last year due to the economic impacts caused by the Covid-19 pandemic.
Revenue also contracted to RM4.46 billion from RM4.64 billion previously.
AllianceDBS Research in a note today said CIMB remains a banking group in transition as it seeks to establish stronger footholds in its key competencies while resolving asset quality and cost concerns, which have historically been a drag on return on equity (ROE).
“CIMB’s financial year 2020's (FY20) ROE will be the lowest since 1999, hit by lower margins and the highest charge-offs in 10 years.
“Though we expect a strong recovery in FY21, this is unlikely to meaningfully re-rate the stock without a strong uptick in loan growth or non-interest income,” it said.
In addition, AllianceDBS Research said although earnings are bottoming out this year and are expected to recover, this is not material enough to re-rate the stock.
On the other hand, it believes swifter-than-expected economic recovery could prompt potential writebacks, which would re-rate the stock given the hefty overlays being made.
AllianceDBS Research said CIMB has revised its FY20 ROE guidance to between 2% and 3% from between 2% and 4% previously, mainly due to higher expected net credit costs of 140 - 150 basis points (bps) and more tempered loans growth.
“We revised our FY20/FY21/FY22 earnings forecasts by -21%, +3%, and +4% respectively after imputing higher credit costs (145bps from 130bps previously) and provisions for the group’s bond portfolio while assuming lower overheads (-7.0%, -4.0%, and -4.0%) given the lower FY20 base.
“After imputing our revised earnings and raising our ROE assumption to 7.6% from 7.5%, our target price is increased to RM3.35,” it noted.
AllianceDBS Research also maintains a hold call on CIMB. – Bernama, November 30, 2020
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