• Downgrade to NEUTRAL from Buy, with new MYR8.90 TP from MYR8, 9% upside and c.5% yield. 2Q24 results met expectations thanks to lower impairments. CIMB’s focus on profitable growth, coupled with low capital consumption allowed it to boost its dividend payout with a special DPS of 7 sen. While we like its proactive capital management and robust earnings growth, ie it is well on track to hit the FY24 ROE target of 11-11.5%, its strong share price performance YTD means potential upside is now limited.

• 2Q24 results were in line, with a net profit of MYR1.96bn (+1% QoQ, +11% YoY) bringing 1H24 PATMI to MYR3.9bn (+14% YoY) – 51% of our and consensus FY24F. 1H24 reported ROE was 11.4% (FY23: 10.7%), tracking its 2024 ROE target of 11-11.5% target. CIMB declared an interim DPS of 20 sen and surprised with an earlier-than-expected special DPS of 7 sen. Total payout was 74.6% (ex-special dividend payout was 55% vs 1H23 DPS/payout of 17.5 sen/55%). Despite the generous payout, CET-1 ratio of 14.5% was still up 30bps YoY (1Q24: 15%). CIMB thinks its capital is now at an optimal level.

• Results highlights: As expected, non-II was down 5% QoQ (+3% YoY) on lower trading & FX, but this was cushioned by lower provisions for Malaysia (MY) consumer and higher writebacks and recoveries in Singapore (SG). Loan growth remained muted (YTD: +1%) on a planned slowdown in wholesale lending to focus on profitability, but CIMB expects growth to pick up in 2H. NIM continued to improve (+4bps QoQ) on deposit cost management. Deposits fell 2% QoQ as CIMB released costlier wholesale funding but CASA ratio was stable QoQ at 40.9% (2Q23: 38.5%). No major issues noted on asset quality with the drop in GIL due to Thailand (TH). LLC was also stable QoQ at 102% (2Q23: 92%). Overall, management retained its 2024 targets.

• Outlook and briefing highlights. In our view, a key takeaway from the briefing was where management thinks a comfortable CET-1 ratio should be, given factors such as regulator expectations and peer CET-1 levels. For now, that level is 14.5%. We believe investors now have better visibility on excess capital payouts. If CIMB can contain its full-year risk-weighted assets or RWA expansion to low-single digit, all else equal, another 7 sen special DPS in 4Q24 is possible. For now, we incorporate the interim special DPS in our numbers, which lifts our full-year total payout to 66% – similar to FY23. CIMB will also continue to be disciplined in growth, but expects loans growth to pick up in 2H and kept its 5-7% target. Growth for MY and Indonesia (IND) were retained at 5% and 5-7%. CIMB thinks Federal Funds Rate cut could aid domestic liquidity (eg exporters converting USD holdings back in MYR) but expects Bank Negara Malaysia to stay pat on policy rate. Finally, while June was a tough month for trading & FX, this had improved in July.

• No change to our forecasts, apart from the higher 2024F DPS. We raise our TP to MYR8.90 on a higher GGM-derived P/BV of 1.22x – in line with its long term mean. Our TP includes an unchanged 6% ESG premium.

Source: RHB Research - 2 Sep 2024