Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with a higher fair value (FV) of RM6.90/share from RM6.60/share previously based on FY24F P/BV of 1.0x, supported by higher ROE of 10.2%.

• 9M23 core earnings of RM5.3bil were within expectations, accounting for both 80% of our full-year estimate and consensus projection. We fine-tuned FY23F/24F/25F earnings by 4.8%/2.4%/2.3% to reflect lower credit cost assumptions.

• 9M23 core earnings grew 11.4% YoY underpinned by a stronger non-interest income (NOII) and lower net impairment losses, partially offset by decline in net interest income (NII) due to NIM compression.

• On QoQ basis, underlying earnings of RM1.8bil rose 4.2%, underpinned by stronger NII due to a stable NIM and lower provisions, partially offset by weaker NOII from a decrease in gains from the sale of NPLs in Indonesia compared to RM170mil recorded in the preceding quarter.

• 9M23 NOII climbed 35% YoY due to a stronger investment and market-related income.

• Gross loan growth eased to 6.4% YoY in 3Q23 vs. 8.3% YoY in 2Q23 contributed by slowdown in wholesale banking loans. By countries, it was attributed to a slower pace of loans in Malaysia and Indonesia while Thailand and Singapore loan growth accelerated in the quarter. Domestic loans grew 4.2% YoY in line with the industry.

• In 3Q23, NIM improved modestly by 1bps to 2.25%. This is supported by margin expansion in Malaysia (low-single digit) and Singapore (7bps), partially offset by lower interest margin in Indonesia (-19bps) and Thailand (-15bps) due to funding cost pressures. YoY, 9M23 NIM contracted 24bps to 2.25% from higher funding cost. The group’s CASA ratio increased slightly to 39.2% in 3Q23 vs. 38.5% in 2Q23 and remains above the pre-pandemic level of 34%. Deposit competition still persists in 4Q23 domestically, and this could compress the group’s NIM slightly in the final quarter of FY23.

• CI ratio inched higher to 46.3% in 9M23 (9M22: 46.1%) due to a negative JAW of 0.4% with growth in opex slightly outpacing total income.

• 9M23 total provisions declined 15.9% YoY to RM1.2bil, contributed by lower impairment allowances in Malaysia’s consumer segment with a relatively benign asset quality. This was offset by top up in provisions for the commercial segment domestically. 9M23 credit cost of 31bps was below management’s guidance of 40–50bps for FY23F. FY23F credit cost guidance has been revised lower to 35-45bps.

Source: AmInvest Research - 1 Dec 2023