Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with unchanged fair value (FV) of RM6.70/share pegging the stock to FY23F P/BV of 1.0x based on an ROE of 10.2%.

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

• The group provided updates on their progress for sustainability at its ESG Corporate Day event.

• CIMB’s ranking for sustainability based on S&P Global corporate assessment for Dow Jones Sustainability Index has steadily improved to 79th percentile in 2021 from 19th in 2018. For 2024F target, the group aims to be at the top quartile globally of the rating assessment.

• It has rolled out the sustainable financing framework which outlines its policies for carbon-intensive sectors (palm oil, oil & gas, forestry, construction & infrastructure, coal, manufacturing, mining and quarrying). Recently, the guidelines for the manufacturing, mining & quarrying sectors have been added to enhance the framework.

• The initial Scope 3 baseline covering 9 of the most carbon intensive sectors (agriculture, aluminum, cement, coal, commercial and residential real estate, iron and steel, oil & gas, power generation & transport) have been published by CIMB. Scope 3 (financed emissions) represents the majority of FIs’ total carbon discharge (>100 times the combined scope 1, 2 & 3 of non-financed emissions).

• On the sustainability commitments which have been announced earlier by the group, CIMB has reduced 24% of the direct GHG emissions (scope 1 & 2) from 2019 vs. the target of net zero operational carbon release by 2030.

• Meanwhile, to achieve net zero GHG by 2050, the group has announced its interim climate targets for the coal and cement sectors. As for the other 7 sectors (aluminum, agriculture, oil & gas, iron & steel, power generation, transport, commercial and residential real estate), the climate targets will be disclosed between 1Q to 4Q2023.

• The group has implemented its commitments on no deforestation, peat and exploitation (NDPE) domestically, incorporated into the palm oil and forestry guides from Jan 2022. CIMB intends to roll this out subsequently in the other markets regionally (Indonesia Singapore, Thailand and Cambodia) by end of 2023.

• The target to mobilise RM30bil sustainable financing by 2024 has already been achieved in 1H2022. Hence, CIMB has now doubled the target to RM60bil to be realised by 2024. On the commitment on social impact to invest RM150mil over 5 years, the group has approved RM36.3mil of corporate social responsibility (CSR) investments in 2021. Additionally, it has achieved 67,278 employee volunteer hours in 2021 vs. the target of 100,000 hours annually.

• CIMB has also rolled out its policies on human rights. The requirements on human rights have been embedded into the group’s financing policies in Malaysia in Aug 2022 and it will soon be extended to the other markets (Indonesia, Singapore, Thailand and Cambodia) by 2023.

• The notable sustainable financing deals over the past 12 months were: i) RM2.5bil sustainability-linked derivatives (SLD) in the form of interest rate swap with Standard Chartered Malaysia in Oct 2021, ii) RM1bil sustainable shariah compliant collateralised commodity murabahah transaction with Standard Chartered Saddiq led by CIMB Islamic in June 2022, iii) >RM1.5bil of sustainability-linked financing accepted by clients, and iv) the launch of sustainable market linked deposits to finance environmental and social development in Indonesia in Sept 2022. Also, the group committed RM100mil financing via BNM’s low carbon transition facility for SMEs as well as granted RM300mil of green home and vehicle financing in 1H2022. Meanwhile, its disbursement of loans to the B40s totaled RM4.5il in 1H2022.

• As of June 2022, the group’s loan exposure to the high sustainable risk sectors are follows:
  • Palm Oil: 3.1%
  • Forestry: 0.6%
  • Oil & Gas: 2.6%
  • Coal: 0.6%
  • Mining and Quarrying: 0.1%
• Management has not disclosed the percentages of its loans for sustainability for the categories C1-C5. Nevertheless, we gathered that the percentage of loans under C1 and C2 was small.

• Meanwhile, the impact of climate stress testing on the changes to capital requirements (if any) is still unknown at this juncture.

• The stock continues to trade at an attractive 0.8x FY23F PB/V vs its 5-year mean of 1.0x. Asset quality has improved with lower provisions while cost optimisation and recalibration of its commercial banking business in Indonesia and Thailand are showing results with improved performance.

Source: AmInvest Research - 23 Sept 2022