We maintain MARKET PERFORM and our GGM-derived PBV TP of RM7.60 (COE: 11.2%, TG: 3.5%, ROE: 11.5%). CIMB hosted an Investor's Day for its Singapore unit to highlight its key strategies over the last five years. In spite of operating only one branch in Singapore, CIMB Singapore contributes 10%-15% of group's pretax profits thanks to strong headways in treasury and corporate banking space, in line with its aspiration outlined during its Forward23+ plan.

Between FY18-FY23, CIMB Singapore posted pretax earnings CAGR of 18% vs. group's 6%. In its 1HFY24 earnings report, it reported an annualised ROE of 23.9% vs group's 11.4%.

- Solid front in business banking. CIMB Singapore's portfolio is built on a focus on high risk-adjusted return on capital products (RAROC), reflecting its growing focus on commercial and corporate banking clienteles since FY19. Supplementing its high profit margin operations is its CASA-heavy deposit (FY23 ratio at 51%, FY19 at 38%) which is supported by the same business clientele likely in support of working capital needs.

On the flipside, we gather that CIMB Singapore is less focused on lower-margin consumer banking products such as mortgage (15% of loans) albeit being better in asset quality. This is reflective on its operating strategies, with only a single branch presence in the entire country but with a strong fleet of relationship managers, following the closure of its Orchard branch in 2021. As of 1HFY24, CIMB Singapore's market share in the retail deposits space is only 2%.

- Treasuries and cross boarders the ways to go. The group sees opportunities in cross border activities, leveraging on more frequent SG-MYR transactions where it has built stickiness with highly competitive forex rates (in addition to SG-ID corridors). The group intends to eventually widen its presence in the preferred and private banking space to those with more frequent remittances. This is also enabled by a rising number of Malaysian expats seeking job opportunities in Singapore while continuing to bank in both countries.

- Once bitten, twice shy. We note that the group in FY20 had booked provisions of SGD472m (or credit cost of 388 bps) attributed to unfavourable exposures in the oil & gas space. This has prompted the group to limit its exposures in commodity trading/finance and thinly capitalised customers. A stronger prudence in managing credit risks led to its booked seeking more secured lending and accounts tied with government guarantees.

Post-kitchen sinking, CIMB Singapore had over time brought its GIL from 3.9% in FY20 to 0.8% in 1HFY24, significantly below CIMB Group's 2.5%. On a normalised basis, its credit cost would amount to 30 bps on average.

A more efficient Singapore player. Having MAYBANK (OP; TP: RM11.95) also recently concluded their own showcase, we draw comparisons between CIMB Singapore and Maybank Singapore.

MAYBANK reported a significantly higher 1HFY24 PBT of SGD510m vs. CIMB's SGD195m, with a loans book of SGD50.6b and SGD15.3b, respectively.

That said, likely due to the abovementioned focus on higher margin products and corporate-centric accounts, CIMB has mostly maintained NIMs at 1.30%-1.40% whereas MAYBANK recently hovered at 0.90%-1.20%. As of 1HFY24, CIMB also posted its CIR of 43% following the group's recent cost efficiency drive - lower than MAYBANK's 47% for the first time in 5- years. Overall, this translates CIMB's ROE of 23.9% to outperform MAYBANK's 11.3%, albeit this was helped by the former's write-backs reported from the abovementioned ECL provisions. That said, with the recent appreciation in MYR, the translation of earnings on a group level may be slightly less impactful for both banks.

Forecast. Maintained.

Maintain MARKET PERFORM and 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 (6%) in the medium term. That said, its current share price indicate that it had already fully priced in FY24 ROE of 11.5%, which we have applied in our valuation, and we will assess its 2025 strategies as it is unveiled.

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 - 15 Oct 2024