Analysts: Recovery in overseas ops positive for CIMB
PETALING JAYA: The Malaysian operations of CIMB Group Holdings Bhd, which account for 69% of pre-tax profit, will continue to support earnings at the group level as CIMB Thai PCL’s contributions to group earnings remain relatively insignificant.
CIMB Thai released the bank’s first quarter ended March 31, 2017 financial results last week that saw notable improvements but analysts pointed out that as earnings were only 3% of the group’s profit before tax for the financial year ended Dec 31, 2017, the earnings improvement in the Thai operations would not provide much of a boost.
Analysts expected CIMB Thai’s contribution to the group to be even smaller this year, as the bank’s management has indicated better loans, improved net interest margin (NIM) and lower credit charge for the Malaysian and Indonesian operations.
CIMB Thai’s net profit for the quarter ended March 31, 2018 rose 39.3% to RM168.8mil baht (RM21.03mil), on the back of higher operating income.
Its operating income rose by 8.1% year-onyear to 3.382 billion baht, while net interest income rose 5.4% to 2.595 billion baht.
The improvement in its performance was also attributed to a 4.5% drop in provisions, which was offset by a 10.6% increase in operating expenses.
Analysts noted that the provisions relating to commodity and auto-related non-performing loans that impacted CIMB Thai’s earnings in 2017 to continue subsiding, although loans growth would remain weak.
Noting the subsidiary’s minimal contribution, Kenanga Research maintained “market perform” call on CIMB Group, as well as target price of RM7.40.
“No changes to our forecasts for the group as historically CIMB Thai’s contributions to the group are minimal,” it said in a note.
Downside risks to its call, it said, include a higher-than-expected margin squeeze, lower-than-expected loans and deposits growth; and worse-than-expected deterioration in asset quality.
PublicInvest Research, which retained a “trading buy” call and target price of RM7.40 on the stock, said the improvements in the Thai operations was encouraging and was optimistic that conclusive recovery was in sight.
“While the group may still see certain pockets of challenges, we are positive on its other initiatives in positioning itself for growth over the longer term,” it said.
RHB Research, meanwhile, said the recovery in CIMB Group’s Thai and Indonesian operations was positive.
“This would add to the healthy income growth of its domestic operations, and enable the group to deliver return on equity improvements in 2018-2019,” it said.