KUALA LUMPUR (May 23): CIMB Group Holdings Bhd fell as much as 1.4% after the banking and financial group yesterday reported that headline net profit had fallen 23% year-on-year to RM1.07 billion in the first quarter of 2014.

The slide in net profit took into consideration a net gain of RM365 million from the sale of CIMB Aviva to achieve profit of RM1.39 billion in the first quarter last year. Otherwise, net profit would have gained 4.4%.

At 11.30 am today, CIMB lost 8 sen or 1% to RM7.30. The ninth top loser saw trades of some 1.3 million shares. It had earlier fallen to a low of RM7.28.

In a note, Affin Investment Bank Research said CIMB’s first quarter performance remained weak and accounted for roughly 22% of house and street estimates.

“The negative surprises are from lower-than-expected operating income, while our credit cost and overheads assumptions remain relatively in-line,” said analyst Tan Ei Leen of Affin IB.

Tan said she has trimmed her FY14, FY15 and FY16 earnings for CIMB by circa 9% to 11% on lower expectations of non-interest income generation.

Tan added she has downgraded CIMB to a ‘reduce’ call from ‘add’ and slashed target price (TP) to RM7.05 from RM7.75.

“In our view, earnings recovery following the release of the first quarter results will be much slower than earlier anticipated,” she said.

“Although the market volatility has more or less ebbed, deal flows in the capital markets remain sluggish and delayed despite a still robust pipeline.”

Tan warned: “This will continue to weigh down on CIMB’s treasury and markets as well as its investment banking divisions.”

However, Kenanga Research maintains its ‘market perform’ call and TP of RM8.00 as it believes CIMB would be able to ‘play catch-up’ in earnings in the subsequent quarters.

“We believe there is still a good chance for the bank to regain its earnings,” said the Kenanga research team.

“The macro situation in Indonesia has been improving coupled with strong performance in Thailand and Singapore’s consumer & commercial banking businesses. There is also a decent outlook for the domestic financial market.”

Kenanga said it has maintained its FY15 and FY16 earnings estimates for CIMB at RM4.78 billion and RM5.14 billion respectively.

Business & Markets

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