CIMB: Earnings Anticipated to Exceed Expectations Amidst Strong Operational Controls, Target Price Raised
| Key Investment Information | |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 |
| Last Traded | RM0.20 |
| Recommendation | |
A leading financial institution is poised to report a significant sequential increase in its third-quarter 2025 earnings, driven primarily by robust non-interest income, a favorable tax rate, and potential non-loan Expected Credit Loss (ECL) writebacks. This positive momentum is anticipated despite year-on-year comparisons facing headwinds from a high non-interest income base in 3Q24 and ongoing net interest income (NII) pressure due to lower policy and benchmark rates.
Performance Review
The institution’s non-interest income is expected to have another strong quarter in 3Q25, benefiting from improved trading and foreign exchange income, marked by better volumes and spreads, as well as an uptick in NPL sales. Operating expenses for 3Q25 are projected to rise sequentially as the firm aims to more evenly distribute its historically higher second-half expenses. However, overall full-year operating expenses are expected to remain well-controlled, aligning with the improved trading and FX performance which should lead to higher variable staff costs.
Challenges and Mitigation
While loan pipelines have strengthened, actual drawdowns have lagged, affecting loan growth. Management views this as a timing issue, expecting growth to pick up in 4Q25 or early 2026. Net Interest Margin (NIM) headwinds in Singapore are expected to persist through 3Q25 due to declining Overnight Rate Average (SORA). Further pressure in 4Q will likely be cushioned by efforts to reduce campaign rates and the full pass-through of policy rate cuts in Malaysia. Asset quality remains robust overall, though a slight uptick in consumer Gross Impaired Loan (GIL) ratios for auto and mortgage segments is possible in 3Q25. The management remains confident in achieving its credit cost target and hints at potential positive movements in non-ECL impairments.
Future Outlook and Recommendation
Looking ahead, the institution maintains a positive outlook, with strong loan and investment banking pipelines. Management expresses confidence in the sustainability of improved liquidity in Indonesia, which is expected to positively impact the group. The recognition of investment banking fees, similar to loan drawdowns, is largely a matter of timing.
In light of these positive developments and the firm’s strategic positioning, TA SECURITIES has maintained a recommendation, with a revised target price of RM0.25, representing a significant 25.0% upside from the last traded price of RM0.20.
