Maybank Investment Bank research unit said the key reasons included an assumption of lower loan growth and higher credit costs.“We cut CIMB Group’s FY20-FY22 net profit by 20%-25% amid lower earnings expectations, both domestically and at CIMB Niaga."
PETALING JAYA: CIMB GROUP HOLDINGS BHD is expected to see an 18% contraction in its financial year 2020 (FY20) earnings before a 3% rebound in FY21, said Maybank Investment Bank.
Maybank Investment Bank research unit said the key reasons included an assumption of lower loan growth and higher credit costs.
“We cut CIMB Group’s FY20-FY22 net profit by 20%-25% amid lower earnings expectations, both domestically and at CIMB Niaga.
“Against a previous FY20 return-on-equity (ROE) expectation of 8.6%, we now estimate a lower ROE of 6.9%, ” analyst Desmond Ch’ng wrote in the report.
Correspondingly, the research outfit has cut its target price on CIMB to RM3.60 from RM5.10, pegged to a lower price-to-book value target of 0.6 times versus 0.8 times previously.
Ch’ng said earnings were lowered for CIMB’s Indonesian operations, CIMB Niaga, and that it has also cut CIMB Niaga’s loan growth to 2% from 5% for FY20-FY21.
Following reports that CIMB has exposure to Singaporean troubled oil trader Hin Leong Trading, Ch’ng said that as at end-2019, CIMB’s oil and gas (O&G) exposure stood at 2.3% of the group’s total loan book which was about RM8.5bil.
“Impaired loans make up about 30% of the O&G loan book with a loan loss coverage of more than 70%. The impaired loans include a legacy loan, which is 100% provided for.
“We estimate the value of this legacy loan to be about RM1.4bil. Excluding this legacy loan, we estimate the loan loss coverage on the remaining O&G loans to be about 33%.”
CIMB, the country’s second-largest lender by asset size, reported a net profit of RM4.56bil last year, down 18% from RM5.58bil earlier.
Like most lenders globally, it is facing challenges from an onslaught of negative factors like the Covid-19 pandemic, cutting of interest rates which is affecting its income and overall slower economic growth.
At the close yesterday, its shares finished at RM3.52, up 2 sen.
Last month, Ch’ng had said that a worst-case scenario for banks in Malaysia amid the current Covid-19 situation could see up to a 49% slash in profits. This possible worst-case scenario assumes four overnight policy rate cuts this year, flat loan growth and a spike in credit costs.
https://www.thestar.com.my/business/business-news/2020/04/28/maybank-ib-cuts-earnings-estimates-for-cimb
