On Tuesday, JPMorgan shifted its outlook on CIMB Group Holdings Bhd (CIMB:MK) (OTC: CIMDF), upgrading the stock from Neutral to Overweight. Accompanying this rating change is an increased price target, now set at MYR10.00, up from the previous MYR8.00. This adjustment follows a recent meeting with the management of CIMB Group.
The analyst from JPMorgan highlighted a positive perspective on the bank's strategic focus, noting that sustainable return on equity (RoE) remains a central goal for CIMB. The bank's management emphasized not just revenue growth but also the importance of cost of funds, operational expenses, and provisions in achieving higher RoE over time.
CIMB's strategy includes prioritizing deposit collection over loan issuance, expanding fee collection, revamping processes, and reallocating capital to optimize performance. These initiatives are expected to position the bank favorably, especially in light of ongoing reforms within Malaysia's banking sector.
The bank's management is targeting an 11-13% RoE and a 12-18% earnings per share growth (EPSg) over the next three years. JPMorgan's revised price target of MYR10.00 is derived from a dividend discount model (DDM), an increase from the prior target of MYR8.00.
The bank's potential to manage excess capital effectively was identified as both a key risk and an opportunity by JPMorgan. This aspect will play a significant role in CIMB's ability to meet its financial objectives and influence its stock performance in the future.
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