CIMB’s 1HFY24 net profit (+14%) was within expectations with special dividends of 7 sen proving a surprise. The group is in line to meet its ROE target of 11.0%-11.5% in FY24, already delivering 11.4% in 1HFY24. We see credit cost concerns to wane but more efforts to acquire loans may be needed in the subsequent quarters. Maintain our GGM-PBV TP of RM7.60 but downgrade to MP (from OP) as the buying rally of its stocks could have been overdone at current price points.

1HFY24 within expectations. CIMB’s 1HFY24 net profit of RM3.90b made up 53% of our full-year and 51% of consensus full-year numbers. An interim dividend of 20 sen and special dividend of 7 sen were declared (a combined payout of 75%); the latter was not unexpected as CIMB had mentioned it may optimize capital (FY23: special dividend: 7 sen per share). We raise our FY24F dividends from 44 sen to 49 sen (c.70% payout, inclusive of special dividend, from 55%).

YoY, 1HFY24 net earnings grew by 14% fuelled by stronger top line. Although NIMs still showed a decline (2.31%, -1 bps), a higher gross loans base (+4%) across all markets supported NII (+7%). Meanwhile, NOII, both fee-based income and treasury performances improved. Credit costs also reported better at 28 bps (-10 bps).

QoQ, 2QFY24 net profit improved slightly (+1%) mainly on the back of better sequential credit costs (20 bps, -15 bps), tracking from better recoveries and lower retail provisions. We highlight that NIMs too saw sequential gains (2.29%, +2 bps) from conscious prioritisation of profits in loans and deposits over volume.

Highlights. While CIMB maintained its headline targets for FY24, we call out its loans growth target of 5%-7% which needs catching up from 1HFY24’s 4% growth (+1% YTD). The group is easing efforts on wholesale banking due to its lower margins and opines consumer banking trajectories can be sustained, mostly seen in Malaysia and Indonesia’s mortgage markets where liability management efforts are more pronounced. Supporting its loans, NIMs management appears to be growing more nimble with CASA levels staying above 40% with greater reception seen in non-Malaysian operations.

We also highlight the group’s credit cost of 28 bps which is slated to beat its 30-40 bps target. Asset quality improvements (reflected in 1HFY24 GILs of 2.6% vs 1HFY23: 3.3%) was also a result of CIMB being more selective with its new on-boardings and cleaned-up CIMB Thailand’s previously troublesome SME portfolio. In lieu of gradual improvements, the group’s LLC of 101% would appear sufficient against large cap peers’ average of c.150%.

Forecasts. Our FY24F-FY25F earnings were tweaked slightly by 1%-2% from 2QFY24’s model updates, credit costs marginally lowered.

Downgrade to MARKET PERFORM (from OUTPERFORM) with a TP of RM7.60. Our TP is based on an unchanged GGM-derived FY25F PBV of 1.05x (COE: 11.2%, TG: 3.5%, ROE: 11.5%). We also applied a 5% premium granted by CIMB’s 4-star ESG ranking thanks to its 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 while offering attractive dividend yields (c.6%) in the medium term. That said, its current share price indicate that it had already fully priced in FY2024 ROE of 11.5%, which we have applied in our valuation, and we will assess 2025 strategies as it is unveiled. Assuming we maintain a COE of 11.2% (currently slightly higher than peers due to high beta nature), pegging to 12.5% ROE which is high range of targets, we would arrive at TP of RM8.60.

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

Source: Kenanga Research - 2 Sep 2024