• Keep BUY, new MYR7.35 TP from MYR6.88, 14% upside with c.6% FY24F yield. CIMB’s 4Q23 results surprised on the upside, and this was sweetened further by a special DPS of 7 sen. The stock has done well YTD, and we see room for the momentum to continue on the back of consensus’ earnings upgrades, improving asset quality, and potential further capital returns from capital optimisation initiatives, among others. At 0.97x P/BV vs FY24F ROE of 10.9%, valuations are undemanding. CIMB is still a sector Top Pick.

• 4Q23 results beat expectations with net profit of MYR1.7bn (-7% QoQ, +29% YoY) lifting FY23 earnings to MYR7bn (+28% YoY) – at 108% of our and 104% of consensus’ FY23F PATMI. While we had expected a weaker bottomline QoQ, non-II was more robust than expected while credit cost was lower than expected on benign asset quality. FY23 reported ROE of 10.7% is within the 10.2-11% ROE target, while CET-1 was solid at 14.5% (4Q22: 14.5%). CIMB declared an all-cash, second interim DPS of 18.5 sen (4Q22: 13 sen) and surprised with a special DPS of 7 sen as part of its capital optimisation plan. Total FY23 DPS was 43 sen (FY22: 26 sen), which translates to a payout ratio of 66% (55% payout, ex-special dividend).

• Results highlights. NIM compressed 15bps QoQ due to the seasonal deposit competition in Malaysia and Indonesia, cushioned by NIM expansion in Singapore. However, this was partly offset by robust non-II from consumer and wholesale fees. The loan and deposit growth momentum was strong at 2% QoQ or 8% YoY. Loan growth was broad-based while, for deposits, CASA rose 7% QoQ or 11% YoY. CIMB attributed this to its earlier initiatives, which have led to strong wholesale CASA traction. As such, its CASA ratio of 42.1% is now close to the pandemic highs of 42-44%. Meanwhile, GIL improved further (-14% QoQ, -12% YoY) aided by write-offs during the quarter. GIL and LLC ratios were 2.7% and 98% respectively.

• Outlook and briefing highlights. CIMB guided for 2024 ROE of 11-11.5%, which would be slightly short of the 11.5-12.5% target under its Forward23+ ambition. CIMB pointed to NIM (2023 NIM: -29bps YoY) and capital drag (CET-1 of 14.5% vs >13.5% budgeted) as key factors. As mentioned previously, the focus this year will be managing funding cost, which is expected to support the guided stable to slight NIM expansion (+5bps). Similar to some of its peers, it sees healthy loan demand but will be willing to sacrifice volume to preserve NIM. Hence, 2024 loan growth is guided for 5- 7%, with Malaysia and Indonesia growing within the guided range. Finally, it thinks a 55% dividend payout ratio can be sustained, but it plans to relook at this if there is room to optimise capital further.

• Forecasts and TP raised. We increase FY24-25F PATMI by 9-10% following the better-than-expected results and raise our TP to MYR7.35. Our TP includes an unchanged 2% ESG discount, based on CIMB’s 2.9 ESG score.

Source: RHB Research - 1 Mar 2024