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Maintain BUY, new TP of MYR6.40 from MYR7.00, 15% upside with c.6% FY23F yield. We increase our COE assumption for CIMB, to better reflect continued uncertainties in the macroeconomic environment. As we maintain our earnings forecasts, the change in TP is a reflection of a lower implied fair P/BV. CIMB is trading at an undemanding 0.86x FY23F P/BV vs ROE of 9.9%. Efforts to reposition and transform the group have started to bear fruit, and should help narrow the valuation gap.
Being sensible on ROE expansion. CIMB’s 4Q22 performance was largely in line with expectations, but notable highlights were robust operating income growth and efforts to clean up the books with impairment top ups. Looking ahead, management targets FY23 ROE of 10.2-11% vs FY22 reported ROE of 9%, underpinned by non-II growth and easing credit cost. Loan growth is expected to moderate to 5-6% YoY (FY22: 7.7%), as CIMB takes a liability-led approach to growth, in view of the intense deposit competition. NIM compression was guided for 5-10bps, and our view is that NIM pressure will likely be heightened in the near term, before easing off in 2H23. Hence, we think its liability-led growth approach makes sense – especially given the prevailing macroeconomic uncertainties. We also like management’s plan to redeploy any excess overlays to shore up impairment buffers (total overlays of MYR2.9bn as at end-2022), which should help address concerns in the past regarding its low LLC levels.
Raising COE assumption to reflect uncertain macroeconomic environment. Amid lingering macroeconomic uncertainties and volatilities, we are raising our COE assumption to 9.4% from 8.9%. Consequently, our TP decreases to MYR6.40 from MYR7.00, based on a revised GGM- derived P/BV of 1.0x (1.1x P/BV previously) and below the historical mean of 1.25x. Due to CIMB’s ESG score of 3.0 out of 4.0 – on par with our country median – the ESG premium/discount to our intrinsic value is 0%. This report marks the transfer of coverage on this stock to David Chong.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....