RHB Investment Research Reports

CIMB - Will 2024 ROE Support a Further Re-Rating? Still BUY

Publish date: Wed, 31 Jan 2024, 11:52 AM
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  • Maintain BUY and MYR6.88 TP, 11% upside and c.6% yield. Post yesterday’s pre-closed period meeting, CIMB’s upcoming 4Q results (out on 29 Feb) could see net profit soften QoQ partly due to seasonality, but YoY growth will likely be decent. That said, given its strong 9M23, the full-year numbers should meet estimates. More importantly, we are watching out for 2024 guidance, especially if the 2024 ROE target of 11.5-12.5% is reaffirmed. Our GGM-derived TP assumes a conservative 10% ROE. CIMB remains one of our sector Top Picks.
  • Loans growth – ending on a positive note. CIMB guided for healthy loans growth momentum in 4Q23 thanks to the consumer segment in Malaysia and non-retail segment in Indonesia (ID) and Singapore (SG). Part of the momentum reflects scheduled pipeline drawdowns, but there were also some short term facilities drawn down in ID and chunky disbursements in SG. Looking ahead, CIMB is cautiously optimistic on loan growth prospects this year thanks to non-retail given the implementation of eg various infrastructure projects. That said, the bank will remain discipline on pricing and be willing to walk away if margins are too thin.
  • Seasonal deposit competition underway, albeit more rational. CIMB saw retail deposit campaigns come through in Sep and Oct 2023, followed by nonretail campaigns in Nov and Dec 2023. Hence, 4Q23 NIM will likely be under pressure. Flipside, CIMB believes this is largely the usual seasonal, year-end competition rather than a deterioration in underlying deposit competition. On the recent launch of operations by digibanks, the impact to date has been minimal. While the digibanks per se are not expected to cause significant disruptions, CIMB is keeping a watch as to how the conventional banks react. Overall, the focus for the bank this year will be to manage its funding cost. It sees room for deposits to reprice and we think this could underpin NIM directionally.
  • Non-II likely held up thanks to wholesale banking fees while trading and forex income was also decent. YTD, forex spreads and volumes have been good but it is still early days.
  • Catch up spending for opex in 2H23. As highlighted previously, opex growth is expected to accelerate in 2H23 and especially in 4Q23 due to, IT and technology projects going live, coupled with higher general and administrative expenses. Also, CIMB stated there will be some cost incurred to streamline its wholesale banking business in 4Q, but the impact is not too material. This streamlining exercise is expected to lead to improved cross selling activities, with a key near term focus on deposit gathering.
  • Asset quality. Delinquencies continued to remain stable while GIL is expected to improve QoQ. However, credit cost could rise sequentially as provision buffers in Thailand were raised and low base for the domestic operations.

Source: RHB Securities Research - 31 Jan 2024

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