Review

• CIMB reported a 1QFY24 net profit of RM1,936mn, translating to a 12.9% QoQ and 17.7% YoY increase, thanks to higher operating income. CIMB’s reported net profit came within expectations at 27% of our fullyear forecast. Annualised ROE stood at 11.4%, close to the FY24 target of 11.5-12.5%

• Operating income broadened by around 12.6% YoY (+4.7% QoQ), underpinned by a 24.5% YoY (+9.7% QoQ) expansion in the non-interest income (non-NII). The NoII saw a robust 24.5% YoY (+9.7% QoQ) growth, driven by various factors. These include improvements in the capital market, investment-related income, and gains on NPL sales. Notably, fee & commission income also continued to grow, rising at a more robust 7.8% YoY, despite a slight dip of 13.4% QoQ.

• Net interest income (NII) also grew by 2.5% QoQ and 7.7% YoY, underpinned by healthy loan growth of 7.0% YoY (+0.3% QoQ). The sequential NII growth is also supported by 3 bps increase in net interest margin (NIM) due to the lower cost of deposits in Malaysia and improved loan yield in Indonesia. YoY, NIM has compressed by 8 bps to 2.18%.

• CIMB's loans and advances portfolio has shown resilience and growth across all key operating markets. Loans and advances continued to be supported by growths in Consumer Banking (+7.1% YoY), Wholesale Banking (+5.8% YoY) and Commercial Banking (+8.5% YoY). Excluding FX fluctuations, loans and advances were led by Singapore (13.1% YoY), Indonesia (+6.0% YoY), Malaysia (+5.1% YoY) and Thailand (+5.0% YoY).

• Total deposits broadened by 8.2% YoY and 1.6% QoQ. The increase was led by Consumer Banking (+12.3% YoY), followed by Commercial Banking (+8.4% YoY). Deposits from Wholesale Banking rebounded to grow by 5.0% YoY. CASA balances further improved, rising by a stronger 16.8% YoY (0.9% QoQ), bringing the CASA ratio up YoY to 40.8% (March 2023: 37.8%).

• Operating expenses expanded by 8.9% YoY (-2.8% QoQ), broadly due to ongoing inflationary pressures and IT investments. Yearly, Personnel expenses grew by 12.5% YoY (+0.3% QoQ). Technology investments (+12.3% YoY, -2.1% QoQ) and Marketing expenses (+18.2% YoY, -17.0% QoQ) also drove operating costs. QoQ OPEX declined due to the absence of year-end expense accruals. On the back of positive JAWs, the cost-to-income (CTI) ratio improved to 45.3% vs. 48.8% in 4QFY23.

• Provisions broadened QoQ by 26.1% and YoY by 13.0% due to higher ECL in the consumer segment. Loan impairment rose by 8.3% QoQ and 32% YoY, while provisions on commitments and contingencies 1) improved QoQ due to lower writebacks in Wholesale and 2) declined YoY due to writebacks in consumer. Taken together, the 1QFY24 loan loss charge improved to 35 bps vs. 37 bps in 1QFY23, keeping it within the management's FY24 target of 30-40 bps. Elsewhere, the gross impaired loans ratio also strengthened to 2.6% (FY23: 2.7%), while the allowance coverage climbed to 111.3% (FY23: 97.0%).

• CIMB remains backed by a decent capital position with a Common Equity Tier 1 (CET1) Capital Ratio and Total Capital Ratio of 15.0% and 18.7%, respectively. LCR remains comfortably above 100% for all banking entities.

Impact

• No change to our earnings estimates.

Outlook

• The 1QFY24 results indicated a solid start to the year, highlighted by robust topline growth driven by a successful NIM recovery strategy, solid CASA growth, and consistently healthy levels of provisions. As CIMB progresses with its Forward23+ ambitions, the 1QFY24 performance keeps the group on track to meet its 5-year targets. Specifically, 1) the 1QFY24 ROE of 11.4% is nearing Forward23+’s target range of 11.5- 12.5%, 2) the CIR of 45.3% is close to the target of keeping CIR below 45%, 3) the cost of credit at 35 bps is better than the guided 50-60 bps, and 4) the CET1 ratio stands at 15%, surpassing the 13.5% target. As such, we believe there could be potential for distributing excess capital through another special dividend this FY.

• Looking ahead, while management remains cautious due to global economic uncertainties and rising geopolitical tensions, they will continue to drive NII through NIM management, enhance NOII, strengthen the deposit and CASA franchise, maintain asset quality, and focus on digital and operational resilience.

Valuation

• Rolling valuations forward to FY25, we raised CIMB’s TP to RM7.90 from RM7.50. Our valuation is based on an implied PBV of c. 1.14x based on the Gordon Growth Model. Buy reiterated on CIMB.

Source: TA Research - 4 Jun 2024