CIMB Group Holdings Berhad - Special Dividend

Date: 
2024-03-01
Firm: 
TA
Stock: 
Price Target: 
7.50
Price Call: 
BUY
Last Price: 
6.53
Upside/Downside: 
+0.97 (14.85%)

Review

  • CIMB reported an FY23 net profit of RM6,981mn, translating to a 28.3% YoY increase compared to RM5,440mn in FY22 due to higher operating income and lower loan allowances. CIMB’s reported net profit came above expectations at 107% of our forecast. ROE stood at 10.7%, within the FY23 target of 10.2-11.0%
  • A second interim dividend and special dividend of 18.5 sen and 7.0 sen per share have been proposed. With that, total dividends for FY23 amounted to 43.0 sen (vs. 26 sen per share in FY22). This translates to a payout ratio of around 55% (FY22: 50.5%).
  • Operating income broadened by around 6.0% YoY, underpinned by a 36.5% YoY (+7.9% QoQ) expansion in the non-interest income (nonNII). Non-NII rose due to the steep improvement in investment and market-related income and gains on NPL sales. Meanwhile, the sequential improvement was due to higher consumer fees and gain on the sale of CGS-CIMB interest. Encouragingly, the fee & commission income continued to expand sequentially, rising at a more robust 17.7% QoQ (3Q23: +6.2% QoQ). YoY, the FY23 fee income grew to RM3,199mn vs RM2,892mn a year ago.
  • Net interest income (NII) slipped by 1.5% QoQ and 3.5% YoY. Although loans grew at a more robust pace of 8.3% YoY (+2.1% QoQ), NII fell due to the contraction in the net interest margin (NIM). YoY, NIM has compressed by 29 bps to 2.22% due to NIM compression from the higher cost of deposits. QoQ, NIM contracted by 10 bps attributed to year-end deposit competition in Indonesia and Malaysia.
  • Loans and advances continued to be supported by growths in Consumer Banking (+7.4% YoY), Wholesale Banking (+9.5% YoY) and Commercial Banking (+8.8% YoY). Excluding FX fluctuations, loans and advances grew in all key operating markets, led by Singapore (11.0% YoY), Indonesia (+8.5% YoY), Malaysia (+5.3% YoY) and Thailand (+4.5% YoY).
  • Total deposits broadened by 8.1% YoY and 1.5% QoQ. The increase was led by Consumer Banking (+16.5% YoY), followed by Commercial Banking (+8.6% YoY). Deposits from Wholesale Banking, however, contracted by 0.6% YoY. CASA balances further improved, rising by a stronger 6.6% YoY and 11.5% YoY, bringing the CASA ratio up YoY to 41.2% (FY22: 39.9%).
  • Operating expenses expanded by 6.9% YoY and 5.3% QoQ, broadly due to inflationary pressures and IT investments. Yearly, Personnel expenses grew by 7.6% YoY (+5.9% QoQ). Technology investments (+8.7% YoY, +7.0% QoQ), Establishment expenses (+2.1% YoY, -7% QoQ) and Marketing expenses (+35.5% YoY, -6.0% QoQ) also drove operating costs. Management noted that the steep increase in marketing expenses was also attributed to Philippines partnership costs linked to revenue growth. With that, the cost-to-income (CTI) ratio stood at 46.9% vs. 46.5% a year ago.
  • Provisions were well contained, improving by 26.4% YoY due to lower ECL in the consumer and commercial segments. However, loan impairment rose by 25.6% QoQ, attributed to some top-up in provisions for the retail segment in Thailand. Taken together, the FY23 loan loss charge improved to 32 bps vs. 51 bps in FY22. Elsewhere, the gross impaired loans ratio also strengthened to 2.7% (FY22: 3.3%), while the allowance coverage climbed to 97.0% (FY22: 93.1%).
  • 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

  • Incorporating FY23 results, we adjust our FY24/25 net profit estimates higher to RM7,291/7,690mn from RM7,154/7,543mn previously. We forecast FY26 net profit to grow by 7.1% YoY to RM8,240mn.

Outlook

  • In FY23, CIMB successfully met all targets except one, i.e. the CTI ratio. Nevertheless, the group demonstrated a commendable performance with a notable increase in ROE from 9.0% in FY22 to 10.7%, underpinned by robust operating income growth. We note that CIMB experienced substantial growth in loans, deposits, and particularly CASA across targeted segments and geographies. Prudent risk management, recoveries, and portfolio de-risking contributed to lower sustainable provisions. Taken together, the reported net profit saw an impressive 28.3% YoY growth, reflecting the positive impact of initiatives from the Forward23+ strategic plan. The higher dividend payout of 55.0% for FY23, including a proposed special dividend, as well as healthy capital buffers, continues to indicate the group’s improving financial strength.
  • In 2024, despite anticipation of economic resilience within ASEAN economies, management remains cautiously optimistic on the back of rising global economic uncertainties. Despite that, management noted that the strategic focus for the final year of the Forward23+ plan would revolve around managing regional NIM, bolstering the CASA and deposit franchise, emphasising Preferred Banking and wealth management, and prudent balance sheet management amid sustained deposit competition.
  • Among some of the FY24 targets, CIMB aims for targeted growth in loans and is thus looking at 1) an easier 5-7% loan growth, 2) maintaining asset quality and managing credit risk within a loan loss charge if 30-40 bps, 3) optimising NIM with a 5 bps expansion guided, and 4) effective cost management to lower the CTI ratio to <45%.

Valuation

  • We raised CIMB’s TP to RM7.50 from RM6.60 due to the upward revision to our earnings estimates. Our valuation is based on an implied PBV of c. 1.16x based on the Gordon Growth Model. Buy reiterated on CIMB.

Source: TA Research - 1 Mar 2024

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