Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value (FV) of RM6.60/share, based on P/BV of 1.0x supported by FY24F ROE of 10%.

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

• The group held an investor day yesterday to update on its digital businesses, Touch ‘n’ Go (TNG), CIMB Philippines and Vietnam. These businesses are parked under CIMB’s Digital Assets (CDA) segment.

• Recall, management of CIMB had earlier guided for a group ROE of 10.2%-11.0% for FY23F. The group aims to achieve a higher FY24F ROE of 11.5%-12.5%, a 70bps- 130bps increase from FY23F. Management alluded to achieving this improvement through: i) BAU profitability from growth in assets, preferred segments and noninterest income (NOII), ii) an increase in earnings contribution from Niaga in Indonesia, iii) optimisation of credit cost, iv) turnaround in profitability of CDA, and v) capital optimisation.

• We gather that CDA’s losses have narrowed over the last 4 years. These were contributed by improvements in CIMB Philippines and Vietnam’s operating performances coupled with the better profitability of TNG since 2019. The lower losses from CDA have contributed to an uplift of 16bps to the group’s ROE in 1H23. For the full-year FY23F, management guided for 17bps expansion to the group’s ROE from lower losses of CDA.

• TNG will be key to the group’s digital banking aspirations. Meanwhile, CIMB Philippines is likely to breakeven in FY23F and be accretive to the group’s earnings in FY24F. For CIMB Vietnam, the digital bank is making headways towards breaking even.

• CIMB Philippines serves 7mil customers and leverages on strategic partners’ footprints and ecosystems to extend its reach to customers. Through this low-cost partnership model, it has increased the scale of operations. It now offers simple products (current, savings accounts, personal loans, revolving credits and virtual debit cards) to appeal to a wide audience. GCash, a top fintech company is one of its partners in Philippines. We note that Lazada and Shoppe are also its ecosystem partners. In 1Q23, CIMB Philippines’ loans stood at PHP12bil while deposits were PHP20bil.

• CIMB Vietnam operates from its headquarters in Hanoi and has a branch in Ho Chi Minh city. In Vietnam, the business is operated through a combination of offering financial services through partners’ digital platforms as well as its branch. More than 70% of the customers have been acquired digitally through the platforms of its 5 ecosystem partners in Vietnam. It serves more than 20mil of its partners’ customer base. Similar to CIMB Philippines, simple products (digital CASA, FDs, smart deposit accounts, debit and credit cards) are offered to cater to a wider range of customers. Loans of CIMB Vietnam stood at USD134mil while deposits amounted to USD166mil as at end of 2Q23.

• TNG has 20mil eWallet registered users and 15mil e-KYC users while CIMB Malaysia has 8mil customers. TNG is likely to turn profitable in 1-2 years’ time through additional revenue streams beyond digital payments while improving its cost through scale of operations. Financial and other services such as lending, wealth management offerings, insurance, prepaid cards, inbound and outbound remittances could be offered to customers to increase revenue. Since Apr 2022, TNG has collaborated with CIMB to offer a personal loan product, GoPinjam. Financing for GoPinjam is backed by CIMB’s balance sheet. Management sees the opportunity for further collaboration to deepen lending, deposit and CASA taking and target micro-SMEs for financial services.

• We continue to like CIMB due to its attractive valuation, trading at 0.9x to FY24F P/BV with a dividend yield of 6.4%. Asset quality has improved with lower provisions while cost take-out has contributed to stronger core ROE.

Source: AmInvest Research - 1 Nov 2023