CIMB Group (CIMB) started off the new financial year on firmer footing with a 1QFY24 net profit of RM1.94bn (+17.7% YoY, +12.9% QoQ) reported, sustained by healthier net interest (NII) and non-interest income (NoII) contributions. Asset quality indicators showed improvements while margins expanded, albeit marginally, reflective of sustained traction from the Group’s transformation (Forward 23+) initiatives. Having met both our and consensus expectations at 27% and 26% of full-year estimates respectively, we keep our forecasts unchanged. We continue to be optimistic over the Group’s medium to long-term prospects as it reaps further rewards from its past and ongoing growth initiatives. Our Outperform call is retained with a higher dividend-derived target price of RM7.20 as we roll-over our base valuation year.

• Operating income was higher by +12.6% YoY to RM5.63bn, underpinned by improvements in net-interest income (+7.7% YoY to RM3.79bn) and noninterest income (+24.5% YoY to RM1.84bn) contributions. Sequential improvement in NII (+2.5% QoQ) is due to margin expansions (+3bps) as Malaysia’s deposit costs fell while Indonesia’s asset yields improved. Annual improvement is the result of strong loans and securities portfolio growth. The jump in NoII is driven by capital market and investment-related income, as well as gains from non-performing loan sales.

• Net interest margin (NIM) improved 3bps QoQ to 2.18% (4QFY23: 2.15%), for reasons as mentioned in the previous paragraph. Management also disclosed that margin improvements for its banking book (excluding treasury and market-related portfolio) was more apparent (+10bps QoQ to 2.69%), with Malaysia driving most of the improvements. Management continues to guide for expansions in Malaysia, with a focus on sustaining and/or improving its asset yields through targeted segmental growth, while also defending its CASA balances (ratio currently at 40.8%).

• Loans growth (+7.0% YoY, +0.3% QoQ) is balanced across its business segments – consumer (+7.1% YoY, ~52% composition), commercial (+8.5% YoY, ~16% composition) and wholesale (+5.8% YoY, ~31% composition). Country- and portfolio wise, Malaysia (+5.1% YoY, 61% composition) is driven by the non-retail (corporate and SME) segment while Indonesia (+6.0% YoY, 15% composition) is lifted by the retail and corporate segments. Loans growth target for 2024 is unchanged at between 5% and 7%, suggesting strong catch-ups in subsequent quarters considering subdued sequential growth.

• Asset quality. Total provisions for 1QFY24 was higher at RM503.3m (+13.0% YoY, +26.1% QoQ), mainly from weakness in the consumer segment. While loan loss charge (LLC) ticked up marginally to 35bps (4QFY23: 31bps) due to increased loan provisions in Malaysia and Indonesia, management is maintaining FY24 guidance at between 30bps and 40bps. Gross impaired loans ratio is lower at 2.6% (4QFY23: 2.7%) while allowance coverage is better at 101.0% (4QFY23: 97.0%).

Source: PublicInvest Research - 4 Jun 2024