CIMB: Strong Core Performance Sustains Earnings, Positive Outlook Despite FX Headwinds
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
CIMB Group reported 6MFY25 results that met expectations, driven by stable net interest margin (NIM), resilient asset quality, and well-managed operating expenses. Despite a 0.9% year-on-year decline in net profit due to softer non-interest income and the impact of a weaker Rupiah, the group maintained an 11.1% Return on Equity (ROE) and a commendable cost-to-income (CI) ratio of 46.2%.
Performance Review
The banking group’s steady NIM was supported by strong margins in Malaysia and Singapore, which offset weaker trends observed in Thailand and Indonesia. Cost efficiencies played a crucial role, with operating expenses remaining flat year-on-year. Furthermore, cross-selling initiatives bolstered fee income and wealth asset under management (AUM). Asset quality remained stable, reflected in a Gross Impaired Loan (GIL) ratio of 2.15% and a net credit cost of 29 basis points. Management proactively reallocated RM500 million in overlays during 2QFY25, in addition to RM100 million in 1QFY25, to address potential macro risks. Loan loss coverage stood at a healthy 100.7%, with the FY25 credit cost guidance maintained at 25-35bps.
Challenges and Nuances
The group faced headwinds from softer non-interest income and adverse foreign exchange movements, primarily stemming from the weaker Rupiah. This contributed to a 3.7% year-on-year decline in Non-Interest Operating Income (NOII). Quarter-on-quarter, net profit for 2QFY25 saw a 4.3% decrease, mainly due to higher provisions despite overall income growth. Loan growth remained subdued at 1.0% year-on-year (3.6% FX-adjusted), affected by currency translation and cautious corporate spending. Domestic loan growth lagged the industry, and Wholesale Banking experienced a contraction.
Outlook and Strategy
Looking ahead, corporate loan growth is anticipated to accelerate in 2HFY25, supported by a robust Wholesale Banking pipeline. An improving liquidity outlook in Indonesia and continued loan recovery momentum are expected to help contain credit costs. The potential for revaluation gains and securities monetization is also present, driven by lower 10-year Malaysian Government Securities (MGS) yields. CIMB remains committed to its deposit-led strategy and active asset-liability management to optimize funding costs.
Investment Rationale
TA SECURITIES maintains its “BUY” recommendation for CIMB Group. The firm notes the bank’s attractive valuation, with its FY26 price-to-book value (P/BV) at 1.1x and a projected ROE of 11.5%. The target price factors in a 3% premium, reflecting the group’s strong 4-star ESG rating.
