KUALA LUMPUR, Jan 22 – RHB Research Institute has downgraded CIMB Group’s call to ‘sell’ from ‘neutral’ with a lower target price (TP) of RM5.20 on the bank’s higher loan provisioning and softer revenue growth expectations ahead. The research house noted markets-related income and asset quality as key risk areas to the earnings.
“We lower our 2014-2016 net profit projections by 6.5-7.5% with the two key revisions being revised credit cost assumption of 41 basis points (bps) from 37 bps, and a 7.0-8.8% cut to our non-interest income projections,” RHB said in a note today. Affin Hwang Capital also downgraded CIMB Group to ‘sell’ with an unchanged TP of RM5, saying the banking group is expected to see another two weak quarters.
“We maintain our TP as we believe that share prices would see some pullback given a potentially weak fourth quarter of 2014 while the outlook for this year does not appear compelling for financing and capital markets,” it said in a separate note. Affin Hwang also noted that the projection was weighed down by rising allowances coming from CIMB Niaga and 2015 may continue as a lacklustre year, as loans growth may remain mediocre.
Meanwile, Hong Leong Investment Bank (HLIB) has maintained a ‘buy’ call on CIMB with TP at RM6.63 on account of economic growth and capital markets as well as the growing regional universal bank platform and the new core banking system. “However, the negatives include the impact on non-interest income if capital markets soften and the impact on asset quality from higher Indonesia interest rate,” HLIB said.
Meanwhile, Kenanga Investment Bank Bhd has downgraded CIMB to ‘market perform’ with TP at RM6.27 given brewing operational headwinds and steep run-up in share price. “The key risks are: steeper margin squeeze, slower than expected loans growth, further deterioration in asset quality, worse than expected slowdown in capital market activities, unfavourable regulatory changes, and adverse currency fluctuations,” Kenanga added.