KUALA LUMPUR (Oct 23): CIMB Group Holdings Bhd shares retreated 1% in early trade this morning after it was downgraded with a lower target price with a weaker earnings forecast.

At 9.05am, CIMB fell 6 sen to RM5.92 with 20,100 shares done.

AllianceDBS Research has downgraded CIMB Group Holdings Bhd to “Hold” at RM5.98 with a lower target price of RM6.10 (from RM7.70) based on the Gordon Growth Model, implies 1.1x FY19F BV multiple.

In a note today, the research cut its FY18-20F earnings for CIMB by 7-10% after imputing mainly the following: (i) further NIM compression from CIMB Niaga; (ii) lower foreign currency translation of the rupiah; (iii) lower non-interest income as a result of a persistently unfavourable macro-environment; and (iv) lower credit cost expectations.

It said due to the muted conditions in Indonesia, CIMB may miss its FY18 ROE target of 10.5%-11.0%, though we maintain that it should be able to achieve its other targets under the T18 initiative, i.e. CET-1 ratio of 12%, cost-to-income ratio of 50%.

“We previously expected CIMB to achieve a 12% ROE by FY20. Given the challenging operating environment for Indonesia mainly, we think this endeavour may take longer to come to fruition.

“As such, we change our ROE assumption to 10.5% from 12%, but maintain a 5% long-term growth and 10.3% cost of equity. Our target price is revised to RM6.10, implying a 1.1x FY19F BV multiple. At this level, we think the stock is fairly priced compared to its peers,” it said.