We like CIMB’s sustainability efforts and commitments. In our opinion, the bank will continue to see steady ranking improvement on sustainability indices and benchmarks. In gist, the plan is to maximize positive impacts (through products and services) and minimize harm (managing ESG risks). Overall, our forecasts are unchanged. Considering CIMB’s share price has already performed strongly YTD, we think there are better risk-reward opportunities in underappreciated, laggard, low beta banking stocks (which have similar recovery growth drivers) like Maybank (TP: RM9.40) and Public Bank (TP: RM4.50). Keep HOLD and GGM TP of RM5.10, based on 0.84x FY22 P/B.

Yesterday, CIMB held its Sustainability Investor Day where management shared more on their efforts and commitments toward achieving ESG-related goals. We summarize the key-takeaways in this report.

Sustainability commitments. To be a sustainability leader in ASEAN (reaching top quartile of the Dow Jones Sustainability Index (DJSI) by 2024), CIMB will be focusing on 3 key areas: (i) Climate Change, with a commitment to attain net zero operational greenhouse gas (GHG) scope 1 and 2 emissions by 2030 and net zero GHG scope 3 by 2050, (ii) Responsible Banking, pledging not to finance new coal activities and exit this sector by 2040, no deforestation, no new peat and no exploitation (NDPE) stance starting mid-2022, together with mobilizing RM30bn towards sustainable finance by 2024, and (iii) Social Impact, by investing RM150m over 5 years and 100k hours p.a. in employee volunteer activities.

Sustainability roadmap. To deliver its above commitments, CIMB has linked senior management compensation to sustainability KPIs. Also, a new Group Sustainability & Governance Committee was established recently to increase accountability from the top management team. Besides, CIMB will continue to learn from their climate-related partnerships. Broadly speaking, the Group’s approach to sustainability is to maximize positive impacts (through products and services) and minimize harm (managing ESG risks): (i) for corporate customers, the plan is to finance and support their transition to a low carbon economy, (ii) for SMEs, guide them on their sustainability journey, (iii) for individuals, provide access and inclusivity, (iv) for own risk mitigation, conduct basic and enhanced due diligence on customers, coupled with (v) portfolio-level climate risk assessment. At end Jun-21, 7.2% of loan exposure is classified as high sustainability risk sectors: Palm (3.0%), Oil & Gas (2.5%), Forestry (0.7%), Coal (0.9%), and Mining & Quarrying (0.1%).

Forecast. Unchanged since there were no material positive/negative updates.

Retain HOLD and GGM-TP of RM5.10, based on 0.84x FY22 P/B with assumptions of 8.4% ROE, 9.4% COE, and 3.0% LTG. This is below both its 5 -year mean of 0.90x and the sector’s 0.89x; we feel the valuation is warranted given its ROE output is 1ppt beneath its historical and industry average. Despite receiving a moderate ESG score, based our earlier analysis (see our report dated 17 Mar-21, titled ‘Doing well by doing good’), we believe CIMB will chalk in a much better grade in the next review given its strong commitment towards sustainability efforts. Also, we noticed they have steadily seen ranking improvement on sustainability indices and benchmarks. However, share price has already performed strongly YTD. We prefer underappreciated, laggard, low beta banking stocks (which have similar recovery growth drivers) like Maybank (TP: RM9.40) and Public (TP: RM4.50) as they both present better risk-reward opportunity.

Source: Hong Leong Investment Bank Research - 23 Sept 2021