Kenanga Research & Investment

CIMB Group Holdings - Sound Outlook Well Appreciated

Publish date: Wed, 31 Jan 2024, 10:30 AM

We maintain our GGM-derived PBV TP of RM6.30 (COE: 11.2%, TG: 3.5%, ROE: 10.5%). The group looks to close its FY23 with few surprises, supported by stable delivery in NIMs and asset quality. We continue to anticipate CIMB to generate strong earnings, backed by its growing regional footprint but its positives could have been fairly captured in the recent price rally. Downgrade to MP (from OP).

CIMB hosted a sell-side 4QFY23 pre-results briefing yesterday. Key takeaways are as follows:

1. Margins competition taking a back seat. Aside from year-end seasonal trends, the group opines that moderating deposits competition could take some pressure off funding cost over the recent months. This appears more prevalent on the retail segments with non-retail products remaining slightly tight. Per the group’s FY23 target, a 15-20 bps NIMs compression is expected which reflects an upside bias to 4QFY23 performance (9MFY23: 2.25%, 9MFY22: 2.49%).

2. Credit quality in good terms. During its 3QFY23 reporting, CIMB narrowed its FY23 credit cost guidance to 35-45 bps (from 40-50 bps) on better delinquency rates. The group opines that its key markets are likely to stay favourable supported by macros being intact, albeit with CIMB Thailand seeing some isolated pains. That said, we believe there could be minor upside bias to FY24 reporting, due to its depleting overlays.

3. Restructuring its wholesale ecosystem. To unlock further opportunities, the group had undergone a restructuring exercise within its wholesale division to enable greater cross-selling opportunities, mainly on the deposits front. That said, this led to certain right-sizing of personnel which could be captured on the operating level. Wholesale banking typically supports a third of group-wide pretax profits.

4. Further cost savings may require deeper planning. Following the completion of CIMB’s 3-year cost take-out initiatives of c.RM1.2b, the group had previously indicated that it would explore further opportunities to improve its cost efficiency. At the moment, it appears that such efforts may only crystallise by FY25 as the group would likely require more time to identify further sustainable measures.

Forecast. Post update, we maintain our FY23F/FY24F numbers.

Maintain TP of RM6.30. Our TP is based on an unchanged GGM-derived FY24F PBV of 0.92x (COE: 11.2%, 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 8%) while offering attractive dividend yields (c.6%) in the medium term. That said, we believe its merits could have been fairly priced following the reemergence of foreign shareholders into Malaysian equities, stabilising CIMB’s risk-to-reward. Hence, we downgrade our call to MARKET PERFORM from OUTPERFORM.

Source: Kenanga Research - 31 Jan 2024

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