CIMB Group Holdings - Encouraging Fronts Throughout

Date: 
2023-12-01
Firm: 
KENANGA
Stock: 
Price Target: 
6.30
Price Call: 
BUY
Last Price: 
6.41
Upside/Downside: 
-0.11 (1.72%)

CIMB’s 9MFY23 net profit (+28%) was within expectations. Loans portfolio trajectory appears to be intact across its business unit and operating regions. Margin compression concerns have also subsided on more efficient funding mix. Meanwhile, the group is also confident to close with better quality books and narrowed its credit cost guidance. Maintain OUTPERFORM and GGM-derived PBV TP of RM6.30. CIMB is one of our 4QCY23 Top Picks.

9MFY23 within our expectation. CIMB’s 9MFY23 reported net profit of RM5.23b met our forecast, making up 78% of our full-year estimate but beat consensus predictions by accounting for 81% full-year estimate. No dividend was declared, as the group typically pays biannually.

YoY, 9MFY23 net interest income was stagnant as an enlarged loans base (+6%) was met by compressed group-level NIMs (2.32%, -19 bps) from previously intense competition for deposits. On the flipside, noninterest income surged by 34% driven by stronger trading results and fees. Collectively, total income increased by 7% which led cost-income ratio to decline slightly (46.3%, -0.6ppt) despite higher personnel cost. With regards to provisions, credit cost narrowed to 32 bps (-11 bps), thanks to improved asset quality on the group’s retail books. All in, 9MFY23 net profit reported at RM5.23b (+28%).

QoQ, 3QFY23 net interest income increased (+3%) as NIMs sustained on top of a slightly higher loans book. Non-interest income, however, declined (-9%) on absence of lumpy sales of non-performing loans. Credit costs were also lower at 21 bps (-18 bps) on better retail book quality. Overall, 3QFY23 net profit of RM1.85b was 4% stronger.

Briefing highlights. The recent showing gave strong confidence to the group in delivering its industry-leading growth trajectory. Most headline guidances for FY23 were unchanged.

1. Loans growth appears to see strong support from all its key regions, with Indonesia and Singapore reporting the highest quantum. Momentum was similarly seen in its consumer, commercial and wholesale banking segments, which the group believes the former will continue to be the most meaningful. It expects its FY23 loans book to close with 6%-7% growth.

2. Deposits competition has likely sailed over with the group expecting stable NIMs in the near-term. That said, 4Q’s seasonal competition could still reemerge, albeit possibly less intense than prior periods.

3. Cost saving measures in CIMB’s Forward23+ initiative is paying off with most of its opex optimisation efforts already yielding results. The group looks to explore further structural cost savings going forward, albeit may be more limited.

4. Group credit cost outlook has improved to 35-45 bps (from 40-50 bps) following better standings on the group’s delinquency rates. Most improvements appear to be derived from its consumer retail portfolio. With write-backs still appearing to be minimal, we reckon overlays could remain close to its previous c.RM2.0b levels.

5. Better digital asset performances could be expected, as CIMB Philippines (digital bank-centric business model) could break even in the near-term.

Forecasts. Post results, we tweak our FY23F/FY24F earnings by +3%/-4% from model updates on 3QFY23’s inputs.

Maintain OUTPERFORM and TP of RM6.30. Our TP is based on an unchanged GGM-derived FY24F PBV of 0.92x (COE: 11.2%, TG: 3.5%, ROE: 10.5%). We also applied a 5% premium granted by CIMB’s 4-star ESG ranking thanks to headways in green financing. Fundamentally, the stock is supported by its regional diversification, especially in terms of NOII which most of its peers lack. CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth (23% vs. industry average of 7%) while offering attractive dividend yields (c.6%) in the medium-term. The group’s recent return to double-digit ROE delivery could be a call back to past investors as well. CIMB is one of our 4QCY23 Top Picks.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-thanexpected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Dec 2023

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