KUALA LUMPUR, Oct 30 — CIMB Group Holdings Bhd’s banking franchise in Indonesia, CIMB Niaga, despite having recorded net profit within expectation for the nine months of financial year 2023 (9M FY2023), may see some pressure with moderating net interest margins (NIMs) coupled with potentially slowing loan growth.

Kenanga Research said in its research note that funding costs have notably been catching up and outpacing gains in loan interest yields, no thanks to a less favourable rate environment in Indonesia.

The research firm said while asset quality risks may arise, current provisions may be sufficient to address immediate underlying concerns.

“We maintain our forecasts, Gordon growth model (GGM)-derived target price (TP) of RM6.30 and ‘outperform’ for CIMB. The stock is one of our 4Q calendar year (CY) 2023 top picks,” it said.

Fundamentally, it said CIMB is supported by its regional diversification, especially in terms of net order imbalance indicator (NOII) which most of its peers lack.

Risks to its call include higher-than-expected margin squeeze; lower-than-expected loan growth; worse-than-expected deterioration in asset quality; slowdown in capital market activities; unfavourable currency fluctuations and changes to overnight policy rate.

AmInvestment Bank also maintained its ‘buy’ call on CIMB with an unchanged fair value of RM6.60.

It noted that the operating expenditure (opex) of the Indonesian subsidiary remained well controlled with a growth of 2.6 per cent year-on-year (y-o-y) in 9M 2023 driven largely by higher personal expenses.

CIMB Niaga recorded a positive Jaws ratio (income and opex growth trends) of 0.4 per cent y-o-y with growth in operating income outpacing opex in 9M 2023.

It continues to like CIMB due to its attractive valuation with a dividend yield of 6.4 per cent.

“Asset quality has improved with lower provisions while cost take-out has contributed to stronger core return on equity,” said AmInvestment Bank in its research note.

Meanwhile, Hong Leong Investment Bank (HLIB) retained its ‘hold’ recommendation and GGM-TP of RM6.10 for CIMB.

On the outlook, it sees CIMB Niaga’s quarterly NIM continuing to decrease in 4Q 2023 on the back of higher funding costs from the policy rate hike by Bank Indonesia and the introduction of Bank Indonesia Rupiah Securities into the market, taking away some liquidity.

Moreover, loan growth is expected to chug along at a current soft pace given a potential wait-and-see attitude by corporate customers, ahead of the general election next year.

“That said, we are not overly worried on asset quality, seeing CIMB Niaga has already made large pre-emptive provisions to cushion for any spike in gross impaired loan ratio,” said HLIB. — Bernama