• Keep BUY and MYR7.60 TP, 13% upside with c.6% yield. Post its pre-closed period meeting, we think CIMB’s upcoming 1Q24 results could see decent sequential bottomline growth. Recall that its key focus for this year – NIM recovery and initiatives to lower deposit cost – is filtering through. Non-II also had a decent quarter. Despite its share price having had a good run YTD, we continue to like CIMB, given its stronger earnings growth prospects vs that of big-cap peers while valuations and dividend yields are still decent.

• Initiatives to lower deposit cost bearing fruit … This began back in Apr 2023 with the lowering of domestic deposit rates. Furthermore, its CASA initiatives such as gathering business operating and payroll accounts, tapping CASA from government agencies and cross-border linkage propositions have seen good traction. Finally, by shedding seasonally high-cost deposits from 4Q23, this will further help ease earlier funding cost pressures.

• … while staying disciplined on loan pricing ... CIMB continues to exercise strict pricing discipline on loans. Domestically, the consumer and SME segments will continue to support growth, thanks to pipeline drawdowns but CIMB said it was willing to concede some market share in mortgages and the wholesale segment, as margins there are too fine. It is not overly concerned with some market share loss in the wholesale segment, given its strong franchise – while for mortgages, it deemed the pricing-volume trade-off as acceptable, ie mortgage rates were raised by c. 20bps over the past year with a c.5-10% impact on its pipeline. It retained its 5-7% loan growth guidance.

• … which will be positive for NIM. Following from the above, CIMB guided for NIM to improve QoQ, led by Malaysia (MY) and Indonesia (IND) on the back of lower deposit cost and loan repricing in IND. These, however, would be partly offset by weaker NIM seen in Singapore (deposit repricing and shift in deposit mix to fixed deposits from CASA) and Thailand (TH – dilution from asset mix and higher funding cost). While these initiatives would still be felt in 2Q, CIMB did admit that there may not be too much room for further deposit rate cuts from hereon. 2024 NIM guidance is flat to a +5bps rise.

• Non-II – 1Q24 was healthy thanks to trading and FX income, as well as NPL sales in IND. On the retail front, fees from wealth management and bancassurance have also been positive. On the whole, 1Q24 non-II is expected to trend higher QoQ and YoY. Despite the positive start, visibility for trading and FX income is typically low but management thinks that sustaining last year’s elevated other non-II level is possible.

• Asset quality holding up although CIMB is keeping an eye out on auto loans in TH and some SME loans in MY, where there has been some uptick in delinquencies. This, however, could be due to seasonality – given the recent festive seasons. For now, its 30-40bps credit cost guidance looks intact.

• Capital – MY, IND and SG continue to drive capital generation and its 55% dividend payout guidance should be sustainable. Opportunities for capital management will likely be in the form of special dividends, similar to 2023.

Source: RHB Research - 7 May 2024