CIMB: Strategic Initiatives Underpin Stable Outlook, ‘BUY’ Rating Maintained

Despite an anticipated sequential dip in fourth-quarter 2025 earnings, an investment bank has maintained its “BUY” recommendation and target price for a prominent financial institution, citing robust strategic initiatives and an optimistic future outlook. The bank’s financial performance in the upcoming 4Q25 is expected to show a low-to-mid single-digit quarter-on-quarter dip in profit after tax and minority interests (PATMI), primarily due to lower non-interest income and higher operating expenses, although cushioned by lower loan impairments. Year-on-year PATMI is projected to remain flat.

Management remains confident in achieving its 12-13% Return on Equity (ROE) target by 2027, bolstered by strong performances from its Malaysian and Singaporean operations, and supported by a previously announced MYR2bn capital return plan.

Performance Review

The financial institution navigated seasonal deposit competition in Malaysia similarly to the previous year, with some banks increasing campaign rates. The institution itself successfully increased deposit volumes in 4Q25 at rates comparable to 4Q24. Positive developments include a quicker normalisation in wholesale deposit rates post-year-end and the impact of deposit repricing following the overnight policy rate cut in 4Q. Improved liquidity in Indonesia and positive sequential trends from deposit repricing are expected to positively impact net interest margin (NIM).

The wholesale banking pipeline in Malaysia saw good drawdown in 4Q25, with strong momentum noted in Singapore (wealth-related financing, commercial) and Indonesia (corporate banking). However, corporate loan momentum in Thailand remained soft due to repayments and weaker demand.

Non-Interest Income and Asset Quality

Non-interest income (non-II) is expected to normalise in 4Q25, after a strong 3Q25, primarily due to the normalisation of trading and FX income and lower gains from NPL sales. Despite this, asset quality remains intact. While management is monitoring a small, gradual uptick in delinquency frequency within the middle-income consumer segment, this has not impacted the group’s overall risk appetite or expected credit loss (ECL). Overall asset quality across key markets is either stable or improving. Positive timing effects on ECL due to updated macroeconomic assumptions are anticipated, with significant overlays retained, suggesting asset quality metrics will trend positively.

Future Outlook and Capital Management

The institution plans to remain flexible on the timing of its capital return, with a preference for front-loading the returns. Analysts have retained their forecasts and a target price of MYR9.00 (which includes a 6% ESG premium) for the stock, with an expected dividend per share (DPS) of 20.5 sen for 4Q25. The stock last traded at MYR8.30. The sustained “BUY” recommendation reflects confidence in the institution’s ability to navigate market conditions and deliver on its strategic objectives.