Industry stats point to a more positive outlook.
On expectations of a sustained pick-up in corporate lending and more buoyant debt capital market activity, Maybank Kim Eng has hiked CIMB’s FY17-19 net profit forecasts by 2%/7%/8%. "Correspondingly, our ROAE projection now stands at 9.5%/10.2%/10.7% for FY17-19 from 9.3%/9.6%/10% previously."
Here's more from Maybank Kim Eng:
A more sanguine outlook
Industry stats point to a more positive outlook for domestic business loan demand this year and with corporate/commercial loans accounting for c.50% of its loans, CIMB is a beneficiary of this upturn.
Moreover, as the dominant player in the debt capital market, the robust infra project pipeline provides support to the group’s non-interest income (NOII). Our loan and NOII growth assumptions are raised and we project robust FY17/18/19 net profit growth of 29%/14%/10% to support ROE expansion.
Credit costs – a wild card
Asset quality in Indonesia has yet to improve, with the industry’s NPL ratio rising to 3.1% in Jan 2017 from 2.9% in Dec 2016. This, however, would be in line with management’s guidance of still elevated credit costs in 1H17.
Coupled with uncertainties over the MFRS9 impact on provisions in 2018, our credit cost assumptions are maintained but there is potential earnings upside should credit costs surprise positively. Every 5bps reduction in credit cost would enhance our earnings by about 3%.
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