Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value (FV) of RM7.10/share, based on FY24F P/BV of 1.0x supported by ROE of 10.7% with a premium of 3% based on our 4-star ESG rating.

• We tweaked our FY24F/25F earnings by +6%/+8% to reflect a lower credit cost assumption.

• FY23 core earnings of RM7bil were within expectations, coming in 2.3% above our estimate and 3.5% of consensus’.

• Underlying earnings grew 12.5% YoY in FY23, underpinned by 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, 4QFY23 underlying earnings of RM1.7bil slipped by 7.2%, contributed by higher operating expenses (OPEX) and provisions.

• FY23 NOII climbed 36.5% YoY to RM6.4bil due to a stronger investment and market-related income as well as gains from sale of NPLs in Indonesia.

• Gross loan growth picked up pace to 8.3% YoY in 4QFY23 vs. 6.4% YoY in 3QFY23. This was contributed by stronger consumer, commercial and wholesale banking loans. Domestic loans grew 5.3% YoY in line with the industry. In FY24, CIMB is targeting a lower loan growth of 5%-7%.

• In 4QFY23, NIM declined 10bps to 2.15%, driven largely by seasonal year-end deposit competition in Malaysia and Indonesia. Meanwhile, NIM in Singapore improved 5bps QoQ while that in Thailand slipped 17bps QoQ, attributed to the acquisition of bonds with lower yields. FY23 NIM contracted by 29bps to 2.22% due to higher funding cost. Management is focusing on the recovery on NIM in FY24 and is hopeful of lowering the funding cost in Malaysia and Indonesia after the year-end deposit competition by lowering rates for deposits. The group has guided for its NIM to be stable or improved by up to 5bps in FY24.

• The group recorded a commendable CASA growth of 11.5% YoY in FY23 which led to an improvement in CASA ratio to 41.2% vs 46.5% in FY22. CASA ratio remains above the pre- pandemic level of 34%.

• CIMB achieved all targets set for FY24 except for CI ratio, which rose to 46.9% in FY23 (FY22: 46.1%) due to a negative JAW of 1% with growth in opex slightly outpacing total income. The increase in opex was contributed by inflation and investments in technology.

• FY23 credit cost of 32bps was within management’s guidance of 35–45bps. GIL ratio improved to 2.67% in 4QFY23 vs. 3.18% in 3QFY23.

• The group declared a 2nd interim dividend of 18.5 sen/share and a special DPS of 7 sen/share, bringing total FY23 dividends to 43 sen/share and payout of 55%, higher than 50.5% in FY22.

Source: AmInvest Research - 1 Mar 2024