This article first appeared in Capital, The Edge Malaysia Weekly on October 30, 2023 - November 5, 2023

Fair value: RM6.60 BUY

AmInvestment Bank Research (Oct 24): CIMB Group Holdings Bhd provided updates on the group through a virtual meeting on Oct 23. The group recorded a strong loan growth of 8.3% year on year (y-o-y) in 2Q23, contributed by higher disbursements of wholesale banking (WB) loans. In 3Q23, loan growth is anticipated to be slower quarter on quarter (q-o-q) in the absence of lumpy WB loan disbursements in 2Q23.

Net interest margin (NIM) is likely to be stable in 3Q23 compared with 2.24% in the preceding quarter. Improved NIMs in Malaysia and Singapore will be offset by weaker interest margins in Thailand and Indonesia.

For Malaysia, NIM stabilised in 2Q23 from higher cost of funds in 1Q23 and 4Q22. This trend continued into 3Q23. Locally, deposit competition has stabilised and management saw the opportunity to lower fixed deposit (FD) rates by 10 basis points (bps) in April, 10bps in June and 5bps in August, thus easing the pressure on funding costs. This initiative, coupled with the full quarter’s positive impact on interest margin from the overnight policy rate (OPR) hike of 25bps in May, may have improved its 3Q23 NIM for Malaysia.

We understand that 4Q23 is likely to see the year-end seasonal deposit competition recurring in Malaysia. CIMB launched an FD campaign in mid-October to target deposits with a six-month tenure. Two other banks have launched FD campaigns in 4Q23 with tenures stretching to early next year. The group’s NIM in Malaysia is expected to contract q-o-q in 4Q23.

For Thailand, NIM has compressed due to the rise in funding costs while in Indonesia, some pressure has been seen on Indonesian subsidiary PT Bank CIMB Niaga Tbk’s interest margin. Over in Singapore, NIM has improved q-o-q. The rise in interest rates following the US Federal Reserve’s rate hikes in May and July has been partially offset by the volatility in income from its treasury business. Niaga’s results are targeted to be announced on Oct 27 while the group’s results are scheduled to be released on Nov 30.

We expect the group’s net profit in 3Q23 to be softer than in 2Q23 due to slower loan growth, lower non-interest income from a decrease in trading, and foreign exchange (FX) and other income (decrease in gains from the sale of non-performing loans in Indonesia and Thailand), coupled with higher operating expenditure. We do not expect any negative surprises in credit costs in 3Q23.

Target price: RM8.70 BUY

RHB Research (Oct 23): International passenger movements reached the highest monthly recovery rate of 92.5%, defying September’s seasonal dip. Despite the aviation industry’s recent turbulence, we believe the impact on airport operators is minimal, reaffirming our positive stance on Malaysia Airports Holdings Bhd (MAHB). As we move closer to the year end, we anticipate a continued resurgence in both domestic and international tourism numbers, which will benefit MAHB, in our view.

For Malaysia, despite the regional challenges posed by a typhoon, international traffic in September (3.3 million) rebounded to reach 79.3% of 2019’s levels — the highest recovery rate for monthly traffic. Total passenger movements in 3Q23 stood at 21.7 million, or 80.9% of 3Q2019 levels, with international and domestic movements at 10.3 million and 11.4 million respectively.

This brought the total passenger numbers going through MAHB’s local airports for the first nine months of 2023 to 60.7 million, or 65.6% of our full-year forecast. Nevertheless, we retain our view that the Malaysia segment is poised for a robust 4Q23 tourism recovery, driven by airline service resumptions, the school holiday peak travel season and a stronger resurgence in outbound Chinese tourism.

Target price: RM2.40 ADD

CGS-CIMB Research (Oct 23): According to a media release by Energy Market Authority (EMA) on Oct 23, Singapore’s Ministry of Trade and Industry and EMA are looking to set up an entity (Gasco) that will centralise the procurement and supply of gas for the power sector. Gasco will aggregate gas demand from power generators (Gencos) and purchase the required volumes on their behalf. This compares with the current framework that allows Gencos to procure their gas volume requirements independently based on their own commercial terms.

This is similar to the temporary price cap implemented in July, with the new framework looking set to further curb excessive volatility in Singapore’s electricity prices. It may also, in our view, create a more level playing field among the Gencos as it would effectively eliminate any gas price advantage. Profit margins would, therefore, need to be driven mainly by plant efficiencies.

According to management, YTL Power International Bhd’s (YTLP) earliest gas contract expiry is end-2025, with some stretching to 2028/29. We do not expect any notable impact on YTLP’s near-term earnings, but longer-term margins could normalise from the elevated levels enjoyed in recent quarters.

Target price: RM14.70 OUTPERFORM

Kenanga Research (Oct 25): The recent de-tariffication seems to be increasing competition in the fire class insurance sector but LPI Capital Bhd maintains steady quarterly growth, likely supported by its affiliates. The group could also benefit from the growth by attracting more projects to its miscellaneous segment.

On the other hand, the claims ratio could decrease with the normalisation of overall activities but reinsurance premiums could increase as more frequent flooding occurs, driving a persistent revaluation of its reinsurance coverage.

Our target price (TP) is based on an unchanged 2.5 times FY24F book value per share, based on a 25% premium against the historical forward P/BV of its industry peers. We believe investors may still shy away from the insurance space until the material impact of Malaysian Financial Reporting Standards 17 becomes more visible.

However, we see thsis as an opportunity to accumulate LPI’s shares given that its premium valuation remains justified based on its better dividend prospects and earnings, notwithstanding support from its affiliation with Public Bank Bhd. There is no adjustment to our TP based on environmental, social and governance criteria, given a three-star rating as appraised by us.

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