CIMB Unveiled Next 5-year Blueprint Known as Forward23

Date: 18/03/2019

Stock  :  CIMB       Price Target  :  6.45      |      Price Call  :  BUY
        Last Price  :  5.26      |      Upside/Downside  :  +1.19 (22.62%)

CIMB Group Holdings (CIMB) recently announced its strategic plan for the next 5 years – “Forward23” (F23). Macquarie Equities Research (MQ Research) released a report (15 Mar), stating that the company’s structurally improved asset quality, operating expenses (opex) containment and refreshed senior management underpin its ambitious F23 targets and execution.

MQ Research maintains Outperform on CIMB.


  • While extended headwinds centred on weak net interest income traction in Indonesia (CIMB Niaga) and lethargic Malaysia capital markets-centric non-interest income (NOII) capped FY18 quarterly earnings, sustained improvements in group-wide underlying asset quality/credit costs and opex containment mitigated, and are core foundations for CIMB’s newly-unveiled F23 5-year Strategy’s broadly aggressive refocus on growth. While near-term return on equity (ROE) traction is restrained by front-loaded F23 investment costs and tail-end dividend reinvestment scheme (DRS) supported common equity tier 1 (CET 1) top-up, these drags are set to fade into FY21, making current sub-book valuation an attractive entry point for longer-term investors.


  • F23 refocus on growth: over the previous T18 Strategy period, the focus had been on a broad de-risking of CIMB’s Asean platform, with asset quality (principally ex-Malaysia), opex management and CET 1 showing significant improvement. Absent these distractions, the revitalised CIMB management bench has a fair chance of executing on F23’s aggressive growth pivot, though upfront spending on digitalisation/IT and human capital enablers is an interim earnings drag.
  • Khazanah, DRS issues overstated: potential stake sale following dominant shareholder Khazanah’s portfolio restructuring is unlikely at current valuations, and with CIMB set to beat target return; though extended, ROE-punitive DRS is expected to cease by FY21.

Earnings and Target Price Revision

  • MQ Research reduces FY19-20E earnings by 10-12% mainly on moderated net interest margin (NIM), NOII and cost to income ratio (CIR) expectations, and introduce FY21 forecasts; MQ Research is 3-5% above consensus. Re Gordon Growth Model-based target price inputs, MQ Research i) pares sustainable long term ROE to 10.5% (from 11.5%) per lowered earnings and delayed DRS phase-out; and ii) rolls forward valuation base to FY20. This generates a RM6.45 target price (TP) or 1.1x FY20E book value, below 5yr average. Bear, bull case valuations are RM5.00 and RM7.88, respectively.

Price Catalyst

  • 12-month price target: RM6.45 based on a Price to Book methodology.
  • Catalyst: favourable and tangible return on invested capital (ROIC) outcomes re F23 initiatives, sustained capital markets-centric income recovery, and progressive DRS phase-out.

Action and Recommendation

  • Maintain Outperform rating, with a revised RM6.45 TP (previously RM7.75).

12-month Target Price Methodology

  • RM6.45 based on a Price to Book methodology

Source: Macquarie Research - 18 Mar 2019

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