CIMB’s 1HFY23 net profit (+26%) and interim dividend were within expectations, with the group seeking to revert to pre-pandemic payouts for FY23. Thanks to its regional performance, CIMB believes it may do better with regards to loans growth with a clearer sense of its asset quality outlook. These may help to offset NIM pressures from earlier intense deposit competition. Maintain OUTPERFORM and GGM-derived PBV TP of RM6.00. CIMB is one of our 3QCY23 Top Picks.

1HFY23 within expectations. CIMB’s 1HFY23 reported net profit of RM3.42b made up 52% of our full-year forecast and 53% of consensus full-year estimate. An interim dividend of 17.5 sen (55% payout) was declared, which we deem to be within our 30.0 sen (c.50% payout) expectation for now.

YoY, 1HFY23 net interest income saw a flattish increase (+1%) as it registered lower group-level NIMs of 2.32% (-16 bps) from heavy deposits competition amidst loans growth (+8%) across its regional operations. Non-interest income performed better (+29%) thanks to more recoveries and improvements in treasury markets. Group costincome ratio reduced to 46.0% (-1.6ppt) as expenses growth were more optimised. Meanwhile, credit cost was moderately better at 38 bps (-3bps) as overall impairments remained stable on the back of the higher loans base. All in, 1HFY23 net profit registered at RM3.42b (+26%).

Briefing’s highlights. The group refined several headline guidances for FY23, believing past targets were too conservative.

1. Seeing positive traction in its regional markets (namely Indonesia and Thailand), the group opted to upgrade its loans growth target to 6%-7% (from 5%-6%), albeit still behind its 1HFY23 growth of 8%. These markets are expected to mitigate expected domestic softness where economic projections may be slowing.
    
2. Group credit cost outlook is also expected to improve to 40-50 bps (from 45-55 bps) as the group observes that asset quality stress may not be as severe as expected. This was also supported by lumpy recoveries seen in Singapore in 2QFY23. The group previously kept overlays of c.RM2.0b which it now reallocates away from pandemic-related provisions to more macro-based ones.
    
3. Conversely, NIMs could still demonstrate heavy compression with 2HFY23 only seeing stabilisation. It has previously guided for 5-10 bps compression which it now extends to 15-20 bps.
    
4. This is on the back of stable OPR for the rest of FY23. It believes its ROE projections should also stay intact safe for unexpected recessionary pressures in its regional footprint.
    
5. On the other hand, the group believes it can be more generous with its dividend payments going forward to now offer a payout of 55%, which we observe to be pre-pandemic rates.

Forecasts. Post results, our FY23F/FY24F earnings are largely unchanged safe for 1HFY23’s inputs. On the flipside, we raised our dividend expectations from 30.0 sen/34.0 sen to 35.0 sen/37.0 sen on improved payout appetite by the group.

Maintain OUTPERFORM and TP of RM6.00. Our TP is based on an unchanged GGM-derived FY24F PBV of 0.86x (COE: 11.7%, TG: 3.5%, ROE: 10.5%). We also applied a 5% premium granted by CIMB’s 4-star ESG ranking thanks to headways in green financing. Fundamentally, the stock is supported by its regional diversification, especially in terms of NOII which most of its peers lack. CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth (21% vs. industry average of 10%) while offering attractive dividend yields (c.6%) in the medium-term. The group’s recent return to double-digit ROE delivery could be a call back to past investors as well. CIMB is one of our 3QCY23 Top Picks.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-thanexpected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Sept 2023