• Keep BUY and MYR6.88 TP, 22% upside, c.6% FY24F yield. CIMBreported another good set of numbers, as benign asset quality andstabilising delinquencies helped keep credit cost muted. With a comfortableearnings cushion relative to consensus’ estimates and its FY23 ROE target,we see room for CIMB to further front-load opex and build loan provisionbuffers in 4Q. These should further aid in nudging ROE towards its FY24target of 11.5-12.5%. At 0.87x FY24F P/BV, we think valuations are tooattractive to ignore. The stock remains a sector Top Pick.

• 3Q23 net profit rose 4% QoQ (+31% YoY)... to MYR1.8bn, bringing 9M23net profit to MYR5.3bn (+28% YoY), at 81-82% of our and consensus’FY23F PATMI as credit cost trailed estimates on better-than-expectedasset quality. That said, we expect a weaker 4Q on seasonality (higher opexand deposit competition) and as YTD estimated credit cost of 37bps was atthe low end of the 35-45bps guidance, we see room to raise LLC further.

• ...on lower effective tax rate. Otherwise, pre-tax profit was flat sequentiallywith weaker Non-II (-8% QoQ on lower gains from NPL sales and tradingand FX) and an opex uptick (+4% QoQ) cushioned by stronger NII (+3%QoQ) and lower loan provisions (-7% QoQ). Overall broad trends werewithin expectations. Reported ROE of 10.7% is tracking FY23’s 10.2-11%target, while CET-1 ratio was healthy at 14.4%. FY23 credit cost guidancewas cut to 35-45bps from 40-50bps while other targets were unchanged.

• Gross loans rose 1% QoQ (+6% YoY) with consumer (+2% QoQ) andcommercial (+1% QoQ) banking. By geography, growth was driven bySingapore (+5% QoQ). Total deposits were flat QoQ (+7% YoY) with CASAup 3% QoQ (+2% YoY), bringing group CASA ratio to 39.2% at end-3Q23(2Q23: 38.5%). Overall, annualised loan growth of 8% was ahead of the 6-7% target (unchanged) while deposit growth kept pace (+6%, annualised).

• NIM ticked up 1bp QoQ (-30bps YoY) led by Malaysia and Singapore.CIMB has seen higher seasonal competition for retail and non-retaildeposits, which will likely impact 4Q NIMs. Via its deposit campaigns, CIMBhas locked in some deposits to tide through the Lunar New Year. Similar toother banks, CIMB said the rate competition was not as severe as 4Q22.

• Asset quality improved with GIL down 4% QoQ (-3% YoY) thanks to theMalaysia consumer segment and Singapore. GIL ratio was down 17bpsQoQ to 3.18% while LLC rose to 96% (2Q23: 92%) on some top-upprovisions for the commercial segment.

• Monitoring cost inflation and opportunities for further structural costtakeout. CIMB said there will be some cost incurred to streamline itswholesale banking business in 4Q, but the overall impact is not too material.On capital allocation, the preference is to allocate capital to growth marketssuch as Indonesia and Singapore.

• Forecasts, TP retained. Our TP includes a 2% ESG discount.

Source: RHB Securities Research - 1 Dec 2023