Review

• CIMB reported a 1HFY24 net profit of RM3,897mn, translating to a 14.0% YoY (+1.3% QoQ) growth, thanks to higher operating income and lower loan allowances. CIMB’s reported net profit came within expectations at 53% of our full-year forecast. Annualised ROE stood at 11.4%, close to the FY24 target of 11.5-12.5%.

• An all-cash first interim and special dividend of 20 and 7 sen/share were proposed, translating to a payout of 55% (excluding special dividend) (FY23: 55%).

• Operating income broadened by around 8.7% YoY (-0.5% QoQ), underpinned by a 6.7% YoY (+1.8% QoQ) and 13.2% YoY (-5.1% QoQ) expansion in the net interest income (NII) and non-interest income (nonNII), respectively. While the yearly non-NII was robust due to stronger fee income (+20.2% YoY) and trading and FX (+6.1% YoY), the non-NII fell sequentially due to lower capital markets and investment-related income and gains from NPL sales.

• NII expanded YoY due to loan growth of 4.2% YoY (+0.6% QoQ). YoY, net interest margin (NIM) compressed by 5 bps to 2.20%. NIM declines in Indonesia (-40 bps) and Thailand (-41 bps) were however, cushioned by the slight expansion in Malaysia (+3 bps) and Singapore (+1 bp). Sequentially, NII growth was supported by a 4 bps increase in NIM due to improvements in the cost of deposits along with asset growth.

• CIMB's loans and advances portfolio has shown resilience and growth across all key segments and operating markets. Loans and advances continued to be supported by growths in Consumer Banking (+5.3% YoY), Wholesale Banking (+1.3% YoY) and Commercial Banking (+5.8% YoY). Excluding FX fluctuations, loans and advances were led by Singapore (7.9% YoY), Indonesia (+5.9% YoY), Malaysia (+4.8% YoY) and Thailand (+3.9% YoY).

• Total deposits broadened at a softer pace of 2.7% YoY (1QFY24: +8.2% YoY). Nevertheless, the increase was led by Consumer Banking (+8.0% YoY), followed by Commercial Banking (+3.6% YoY). Deposits from Wholesale Banking, however, declined by 4.1% YoY. CASA balances further improved, rising by a stronger 9.2% YoY (-1.1% QoQ), bringing the CASA ratio up YoY to 40.9% (June 2023: 38.5%).

• Operating expenses expanded by 7.9% YoY (+0.8% QoQ), broadly due to higher Technology (+9.4% YoY) and Admin & General (+13.3% YoY) expenses. Elsewhere, Personnel expenses (+8.6% YoY) and Marketing expenses (+7.7% YoY) also drove operating costs. QoQ OPEX grew by 0.8% due to ongoing investments in IT to ensure reliability and operational resiliency. On the back of negative JAWs, the cost-to-income (CTI) ratio rose to 45.9% vs. 45.3% in 1QFY24.

• Total provisions declined QoQ by 40.6% and YoY by 8.9%. The sequential improvement was due to writebacks and recoveries in Singapore and lower Malaysia Consumer. YoY improvements were driven by lower Corporate ECL in Indonesia & Singapore. Taken together, the 1HFY24 loan loss charge improved to 28 bps vs. 32 bps in FY23, keeping it slightly below the management's FY24 target of 30-40 bps. Elsewhere, the gross impaired loans ratio also strengthened to 2.5% (FY23: 2.7%), while the allowance coverage climbed to 101.2% (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 14.5% and 18.2%, respectively. LCR remains comfortably above 100% for all banking entities.

Impact

• No change to our earnings estimates.

Outlook

• As CIMB advances with its Forward23+ strategic plan, the group's 1HFY24 performance aligns well with its 6-year objectives. On course, the 1HFY24 ROE of 11.4% is approaching the Forward23+ target range of 11.5-12.5%. Additionally, the CIR at 45.6% is consistent with the goal of maintaining CIR below 46.9%. The cost of credit at 28 bps outperforms the guided range of 30-40 bps, while the CET1 ratio of 14.5% comfortably exceeds the >13.5% target. Moreover, the dividend payout aligns with the target of 55%. However, off course, loan growth of 4.2% slightly lags the 5-7% target.

• Looking ahead, management anticipates continued benefits from CIMB's diversified ASEAN portfolio and broad client segments. The group expects ongoing asset growth, stable NIM, expansion in the non-NII, growth in preferred segments, disciplined cost management, sustained asset quality, and a turnaround in CIMB Digital Assets to support future earnings.

Valuation

• We updated the beta and lowered our market risk premium from 6% to 5.5% for the banking sector on the back of the improving economic environment in Malaysia, the banking system’s healthy asset quality and capital ratios, stable interest rate environment and more positive investor sentiments. With that, we raise CIMB’s TP from RM8.14 to RM9.48. Our valuation is based on an implied PBV of c. 1.32x based on the Gordon Growth Model and a 3% ESG premium. Buy maintained on CIMB.

Source: TA Research - 2 Sept 2024