Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with unchanged fair value of RM5.80/share based on FY22 ROE of 9.5% leading to a P/BV of 0.9x. Valuation of the stock remains undemanding, trading at 0.8x FY22 P/BV. This stock remains one of our top picks for the banking sector. It is one of the sector’s stocks with higher liquidity and is poised to benefit from foreign fund inflows.

• We project an improved ROE of 9.5% in FY22 supported by higher total income and lower provisions. We make no changes to our earnings estimates.

• CIMB held a virtual conference yesterday to provide updates on its commitment towards sustainability.

• CIMB aims to be a sustainable finance leader and achieve the top quartile ranking globally in the Dow Jones Sustainability Index (DJSI) by 2024. In 2019, the group was ranked in the 65th percentile for DJSI. Meanwhile, in FTSE4Good, the group was ranked in the 64th percentile in 2020. Its score under the Sustainalytics ESG Risk Rating has improved to 19.8 in 2020.

• The group sees new business markets and opportunities from its sustainability commitments. For corporate clients, opportunities will emerge in potential green financing, sustainability linked loans, issuance of sustainable bonds/sukuks and transition finance. Also, there is potential for advisory, micro financing to farmers and renewable energy financing to be offered to SMEs. As for individual clients, preferential rates could be offered for green home and vehicle financing while home, personal and vehicle financing will be made accessible to the B40s.

• CIMB aims to enable new and existing customers to grow in areas which will have positive economic, environmental and social impacts. Also, its customers will be incentivised to embed positive ESG practices into their businesses and lifestyles. Additionally, the group seeks to improve the financial literacy of its customers with knowledge sharing and mentoring programmes as well as achieving a more inclusive financing with loans available to clients.

• CIMB has revised its commitments on sustainability (Exhibit 2). This reflects a stronger focus on its journey towards a sustainable business.
• The group is now targeting to achieve a net-zero operational greenhouse gas (GHG) emission (scopes 1 & 2) by 2030 and net-zero GHG by 2050. This compares to the earlier commitment of just 10.0% reduction in scope 1 & 2 GHG emissions from 2019’s baseline.
• CIMB reiterated its stance of no new coal financing and to exit loans to the coal sector by 2040. Besides, it will implement its commitment on NDPE (no deforestation, no peat and no exploitation) commencing mid-2022 in Malaysia. Thereafter, this will be extended to the other markets of its business operations.
• We gather that the allocation of funds towards sustainable financing by 2024 will be raised to RM30bil from the RM10bil committed earlier. For corporate and commercial banking customers, financing will be focused on assisting borrowers to transition to a low-carbon economy. Meanwhile, for IB, treasury and markets as well as private banking businesses, the focus will be to facilitate, arrange bonds/sukuks issuance and launch ESG structured products and funds for investment by clients. As for the consumer banking customers, CIMB aims to support the B40 and vulnerable retail customers to transition to a more sustainable lifestyle.

• For social development, the group targets to invest RM150mil over 5 years and 100,000 hours annually by 2024 with employees volunteering in activities to create a positive impact on lives, communities and businesses.

• To deliver its sustainable commitments, we understand that a Group Sustainability & Governance Committee has been formed in September 2021. The focus of this committee is to drive strategic sustainable issues such as the climate change strategy.

• Sustainability risk has been integrated into the group’s risk management framework. This allows the ESG risks to be managed at both the transaction and customer levels while climate risk be managed at the portfolio level.

• As of end-June 2021, the group’s exposure to high risk sustainability sectors remained low (palm oil: 3.0%, oil & gas: 2.5%, forestry: 0.7%, coal: 0.9% and mining and quarrying: 0.1%).

• The group has engaged with borrowers in the logging, rubber gloves and oil palm sectors. This is to ensure that borrowers in the logging business are not involved in deforestations, and abide by regulations for their operations. On rubber glove companies, borrowers are monitored to ensure that positive actions will be implemented to improve their labour practices. As for the palm oil sector, the group is imposing time-bound plans for borrowers to complete their sustainable certifications of their plantation holdings.

Source: AmInvest Research - 23 Sept 2021