Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value (FV) of RM6.90/share based on P/BV of 1.0x supported by FY24F ROE of 10.2%.

• No changes to our neutral 3-star ESG rating and earnings estimates.

• CIMB provided updates on the group through a virtual meeting yesterday.

• Net interest margin (NIM) is likely to be weaker QoQ in 4Q23, attributed to an increase in funding cost. On retail deposits, we gather that there were still campaigns ongoing in Sept and Oct 23 even though competition was not as intense as in 4Q22. Meanwhile, on non-retail or wholesale deposits, the increase in cost of funds was higher than retail deposits for both Sept and Oct 23. Management alluded to a moderation in deposit competition in 1Q24. Nevertheless, we continue to see challenges in the ability to lower cost of funds in the near term.

• Thus far, there has not been any flight of deposits to digital banks. Hence, commencement in digital banking operations of GXBank, Boost and Aeon Bank have not impacted the group’s deposit pricing strategy.

• We understand that in 4Q23, loan momentum has been strong and likely to meet the group’s growth target of 5%- 6% for FY23. By segments, it will be supported by drawdowns of consumer financing and non-retail loans in Indonesia and Singapore. Management sees prospects for corporate loans improving towards the latter part of FY24 from financing of infrastructural projects and capex requirements of borrowers.

• In 4Q23, loan delinquency trends across key markets have been stable. This will lead to an improved GIL ratio. We do not expect any negative surprises for credit cost in the quarter. The group continues to minimise its management overlays and reallocate them by countries/business segments to be more conservative in view of the macro headwinds.

• 4Q23 will likely see a QoQ improvement in wholesale banking’s fee income in Indonesia and Thailand. Meanwhile, trading and fx income in 4Q23 is likely to be decent as Dec 23 was a stronger month for Malaysian and Singaporen operations. Challenges continue to be seen on treasury and investment income in FY24F. As a result, we have pencilled in a lower NOII in FY24F on expectation of softer markets-related income.

• Arising from favourable movements in MGS yield, the improved FVOCI reserves in 4Q23 is likely to contribute to stronger capital ratios.

• CIMB Niaga’s 4Q23 results will be announced on 21 Feb while the group’s results will be released on 29 Feb 2024. We expect the group’s 4Q23 net profit to be decent, underpinned by robust loan growth, stronger NOII and improved loan delinquency rates with a stable credit cost. This is despite a weaker NIM in the quarter from higher funding costs.

• We continue to like CIMB due to its attractive valuation, trading at 0.9x FY24F P/BV with a dividend yield of 6.5%. Also, it is seen as a more liquid banking stock that will benefit from foreign fund inflows. Asset quality of the group has improved with lower provisions while diversification of its revenue and portfolio reshaping initiatives have contributed to a stronger core ROE. Optimisation of credit cost, capital and lower losses from digital assets invested are envisaged to uplift its earnings ahead.

Source: AmInvest Research - 31 Jan 2024