Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value (FV) of RM6.70/share based on FY24F P/BV of 1.0x supported by an ROE of 10.3%.

• 6M23 earnings were within expectations, accounting for 52.6% of our estimate and 53.3% of consensus projection. However, we fine-tuned FY23F/24F/25F earnings by +0.1%/+0.3%/-0.2% by lowering our net interest margin (NIM) and credit cost assumptions.

• CIMB reported a higher core earnings of RM1.77bil (+7.8% QoQ) in 2Q23, underpinned by a stronger net interest income (NII) and non-interest income (NOII), partially offset by an increase in operating expenses (OPEX) and allowances for loan losses.

• In 6M23, the group reported a higher core earnings of RM3.4bil (+10.4% YoY). The stronger earnings were attributed to an improved NOII and lower total provisions. NOII climbed by 32% YoY due to a stronger income from treasury & markets, FX gains and gains booked in from the sale of impaired loans in Indonesia and Thailand. Management alluded to no further significant sales of impaired loans in 2H2023.

• Gross loan growth accelerated to 8.3% YoY in 2Q23 vs. 7.4% YoY in 1Q23 from the drawdown of wholesale banking loans. Additionally, it was contributed by the expansion of consumer and commercial banking loans. Domestic loans grew by 4.7% YoY, outpacing the industry’s 4.4% YoY growth.

• In 2Q23, pressure on NIM moderated with a lower compression of 2bps QoQ to 2.24%. In 6M23, NIM contracted by 22bp YoY to 2.25%. The group’s CASA ratio increased slightly to 38.5% in 2Q23 vs. 37.9% in 1Q23 and is still above the pre-pandemic level of 34%. Management has revised its NIM guidance for FY23 to a compression of between 15bps20bps from a contraction of 10bps-15bps earlier. Although FD rates through the campaigns domestically have tapered, competition on deposits still persists.

• CI ratio improved marginally to 46% in 6M23 (6M22: 46.5%) with growth in operating income outpacing overhead expenses.

• In 6M23, total provisions fell by 2.9% YoY to RM880mil largely due to lower ECL for commitment & contingencies from the release of overlays and decline in other provisions with the absence of provisions for a double-crediting incident in 6M22. 6M23 credit cost of 37bps was within the guidance of 45bps–55bps for FY23.

• An interim dividend of 55 sen/share (payout: 55%) has been declared in the 6M23, higher than the payout of 50% in 6M22.

Source: AmInvest Research - 1 Sept 2023