• Maintain BUY and MYR7.60 TP, 11% upside with c.6% FY24F yield. CIMB’s 1Q24 results met expectations with robust operating income, improved asset quality metrics and stronger capital position among key positives. CET- 1 ratio rose to a new high of 15%, boosting the odds of special dividends in FY24. While the stock has done well YTD, valuations are still undemanding (1x FY24F P/BV vs 10.9% ROE). We see sufficient positive takeaways from the results and potential special dividends to keep CIMB as our Top Pick.

• 1Q24 results in line with net profit of MYR1.9bn (+18% YoY, +13% QoQ) at 25-26% of our and consensus FY24F PATMI. PATMI growth drivers were solid – stronger operating income (+13% YoY, +5% QoQ) from both NII and non-II, positive jaws (1Q24 CIR: 45.3% vs 1Q23: 46.9%, 4Q23: 48.8%) and credit cost largely under control. Reported ROE was 11.4%, tracking the upper end of the 2024 target of 11-11.5%.

• Key positives: i) Non-II jumped 25% YoY (+10% QoQ) thanks to stronger trading and FX, as well as fee income; ii) NII rose 8% YoY (+2% QoQ) with loan growth of 7% YoY (flat QoQ) while NIM was up 3bps QoQ (-8bps YoY) thanks to Malaysia (MY) (+6bps QoQ due to lower deposit cost) and Indonesia (IND) (+15bps QoQ on improved loan yield). Singapore (SG) and Thailand (TH) NIMs were lower on deposit and asset yield mix; iii) opex was generally under control; iv) asset quality improved as GIL eased 4% QoQ (-15% YoY) led by both MY and IND. Hence, GIL and LLC ratios improved to 2.6% (4Q23: 2.7%; 1Q23: 3.2%) and 102% (4Q23: 98%; 1Q23: 95%); and v) improved capital position on FVOCI gains and lower RWA density. On the flip side, loan growth was flat QoQ as chunky repayment impacted wholesale loan growth.

• Outlook and briefing highlights. CIMB retained its 2024 targets and guidance (Figure 2). However, unlike in 2023 where IND fuelled overall growth with a 30% YoY rise in PATMI, growth from IND this year is expected to be more modest (1Q24: +11% YoY). As such, MY and SG will need to pick up the slack. The focus for MY is a NIM recovery, where CIMB thinks there is still room for NIM to expand QoQ on lower deposit cost but, beyond that, NIM is likely to stabilise. For group NIM, CIMB continues to guide for a stable-to-5bps NIM expansion (1Q24: 2.18% vs FY23: 2.22%). On loans, it will continue to stay disciplined on loan pricing, and is willing to walk away if pricing is unattractive – even if it means missing its 5-7% loan growth target. On non-II, management thinks retail fees and treasury flow income look sustainable but wholesale/investment banking fees and trading gains are going to be opportunistic and dependent on market opportunities. Lastly, CIMB’s preferred capital optimisation option for now continues to be in the form of special dividends vs a higher regular payout. Capital consumption is likely to pick up ahead as sequential loans growth gains pace, but its strong 1Q24 capital position leaves headroom for a capital optimisation exercise.

• No change to our forecasts and TP, which includes a 6% ESG premium.

Source: RHB Research - 4 Jun 2024