KUALA LUMPUR (Aug 3): Analysts’ views on the quarterly earnings performance of PT Bank CIMB Niaga Tbk, a 97.94%-owned Indonesian unit of CIMB Group Holdings Bhd, are divided.
Some analysts opined that the worst could be behind for CIMB Niaga following the large provision for non-performing loans (NPL) in the past quarters. But others are concerned that the slowdown in the economic growth in Indonesia and weak commodity prices, particularly coal, may still put pressure on NPL provision.
CIMB Niaga, the largest overseas contributor to CIMB Group, saw its net profit dip nearly 91% to Rp176 billion, or Rp7.02 per share, for the first half of the financial period ended June 30, 2015 (1HFY15) from Rp1.95 trillion, or Rp77.70 per share, in the previous corresponding period, due to the high level of provisions predominantly from the coal and coal-related sector.
The banking group said the softer 1HFY15 results were attributed to the economic slowdown coupled with a challenging business environment.
In a note to clients today, MIDF Research said even though provisions for CIMB Niaga has declined 7.7% quarter-on-quarter to Rp1.3 trillion, it remained high in the second quarter of FY15.
The research house also warned that high provisions may continue for the rest of the year. “Even though management highlighted that CIMB Niaga’s provisions are likely to trend lower sequentially moving forward, we do not expect significant improvements in its provisions in 3QFY15 and 4QFY15," it said.
MIDF Research explained that this is in view of Indonesia’s potentially slower economic growth in the second half of the year, which is likely to impact asset quality of the banking sector in Indonesia as a whole.
The research house leave its earnings forecast unchanged for CIMB Group, maintaining “neutral” recommendation with an unchanged target price of RM6.10.
On the contrary, Affin Hwang Capital Research expects a steadier outlook for CIMB Niaga in 2HFY15 as provision should ease given that loan loss cover (LLC) is at 99.6%, while the LLC for the coal sector related portfolio is 70% provided.
“We expect low-teens loan growth rate in 2015, driven by the consumer banking divisions and selective focus on high quality commercial/corporate customers as management focuses on improving credit standards,” it said in a note today.
However, Affin Hwang Capital Research does not foresee strong rerating catalyst for CIMB Group in the near future, but it does note that earnings outlook in 2016 will potentially rebound in the absence of elevated provisions while rationalisation at the investment bank division and staff mutual separation scheme will result in annual savings of RM500m per annum.
The research house reiterates its "hold" rating on CIMB Group, with a target price of RM5.90.
CIMB Group is expected to release its second quarter ended June 30 (2QFY15) financial results on Aug 28.
At 11.25am, CIMB was traded at RM5.33, down 5 sen or 0.93%, giving it a market capitalisation of RM45.25 billion.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)