• Keep BUY, new MYR8 TP from MYR7.60, 12% upside and c.6% yield. There were no surprises at CIMB’s pre-closed period meeting. We see upcoming 2Q24 PATMI easing slightly QoQ (mid-high single-digit growth YoY) as trading and FX income softens, but 1H24 results should meet our and consensus expectations, with ROE tracking the 11-11.5% guidance. CIMB is a sector preferred pick. Its focus on profitable growth is helping drive ROEs higher amid robust capital generation. Investors are likely to be well rewarded with a re-rating in valuations and higher capital returns.

• Expect NII to underpin 2Q24 income trends… Loan demand has generally been positive across the segments. That said, CIMB continues to stay disciplined on loan pricing and has walked away from deals due to pricing being too fine, especially in the corporate segment. That said, the bank thinks themes such as data centres, renewable energy, and roll-out of initiatives under the various masterplans should be positive for loan demand ahead. For now, it kept its 2024 group loan growth of 5-7%. CIMB also flagged out the importance of preserving its client franchise. While it may forego lending to preserve NIM, it remains focused on the other relationship aspects such as CASA, treasury markets, FX, etc. For retail, its mortgage acceptance rate had dropped by 10-15% post a 20bps upward adjustment to loan pricing. CIMB is keeping an eye out on this, and may need to step back in the market.

• …with NIM tailwinds from earlier deposit repricing. Earlier efforts to lower deposit cost should continue to be positive for 2Q NIM, although tailwinds could ebb beyond that. Deposit competition has been stable, but it also means that there may not be too much room for further deposit rate cuts ahead. 2024 NIM guidance is flat to a +5bps rise.

• Asset quality – no alarm bells. Delinquency trends for retail in Malaysia and Indonesia have been stable to slightly better. While CIMB had earlier seen some signs of pressure for local SMEs, this had eased off in 2Q. For the corporate portfolio, management has not noted any major names going through stress or potential downgrades. In Thailand, however, delinquencies for its consumer finance business remains elevated but is improving. Despite a fairly benign landscape, CIMB is looking to keep its 30-40bps credit cost guidance to ensure adequate coverage for its portfolio.

• Non-II likely to soften QoQ, as trading and FX incomes ease from elevated level in 1Q24. Also, gains from NPL sales have softened QoQ and YoY. On the flipside, fee income should stay healthy thanks to wealth management and commercial banking fees from loan drawdowns.

• CIMB is optimistic of hitting ROE targets, with NIM trends likely to be key whether actual ROE ends up at the top/lower end of the guided range. On capital, it is comfortable with a 14-15% (1Q: 15%) CET-1 range. Forecasts remain but TP is upped after a roll forward to FY25F. Our new TP integrates a 6% premium given CIMB’s 3.3 ESG score vs the 3.0 country median.

Source: RHB Research - 30 Jul 2024