CIMB Retains BUY As Indonesian Franchise Supports Upside

CIMB retains its BUY call with a revised RM10.00 target price, supported by resilient earnings, improving asset quality, strong dividends and embedded optionality.

CIMB Retains Strong Growth Outlook

CIMB Group remains a preferred large-cap banking pick, with the BUY recommendation retained despite a lower target price of RM10.00 from RM10.30. The revised target, based on 1.39x FY27 price-to-book value, reflects confidence in the group’s earnings resilience and attractive shareholder returns.

The downgrade follows weaker-than-expected results from 93%-owned Bank CIMB Niaga, whose 2Q26 net profit rose 1% year-on-year but fell 5% quarter-on-quarter to IDR1.67 trillion. First-half net profit declined 1% year-on-year to IDR3.44 trillion, reaching 45% of the full-year forecast.

Softer net interest margins and higher loan loss provisions were the key factors behind the shortfall, prompting management to lower its return on equity guidance by one percentage point.

However, analysts view the higher provisions as largely temporary rather than a sign of deteriorating fundamentals. Bad loan provisions surged about 80%, mainly due to a new OJK treatment of repossessed vehicles, which generated an IDR420 billion charge.

The impact should gradually reverse as the assets are sold over the next 12 months. Niaga’s exit from BNPL and fintech lending, alongside MEF top-ups, also contributed to the increase.

Underlying asset quality remains healthy, with loan-at-risk, gross impaired loans and non-performing loans improving sequentially. Loss coverage ratios remain above 100%, reinforcing the view that credit risks are manageable.

Operational execution was another positive, with pre-provision operating profit rising 8% year-on-year, supported by a 21% increase in non-interest income and disciplined costs. Sticky fee income has also continued to grow.

Near-term margins remain under pressure from Indonesia’s higher interest rates and deposit competition, although loan repricing is expected to support stabilisation by end-2026.

CIMB’s valuation remains compelling at 10.2x P/E and 1.11x P/B, alongside a 6%-7% dividend yield. The market also appears to assign little value to its Indonesian franchise and 45% stake in TNG Digital, together offering potential embedded value of up to RM1.70 per share.

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