• Maintain BUY and MYR9.25 TP, 12% upside with c.5% FY25F dividend yield. CIMB’s 3Q24 results are in line with expectations, and it is well on track to achieve the 2024 ROE target. With that, investor focus will increasingly turn to its new strategic plan next year. Its solid capital and loan provision buffers are good starting points, while the funding-led growth strategy looks set to stay. A well-received capital management plan and new (higher) ROE target under the new plan are near-term catalysts we see for the stock.

• 3Q24 net profit rose 4% QoQ and 10% YoY to MYR2bn, bringing 9M24 PATMI to MYR5.9bn (+13% YoY) – at 78% of our and 77% of consensus FY24F PATMI. We deem the results as in line, on expectations of a weaker 4Q due to seasonal factors. 9M24 reported ROE was 11.7% (FY23: 10.7%), tracking ahead of its 2024 ROE target of 11-11.5%, which was retained. Capital generation was healthy, with CET-1 at 15% (+50bps QoQ) and above the >14.5% guidance. That said, CIMB guided that another special DPS for FY24 was unlikely – possibly to conserve some capital as it kicks off its new strategic plan next year.

• Results highlights: QoQ PATMI growth was due to a lower ETR, with PBT flat sequentially. Operating income rose by a decent 2% QoQ, thanks to both NII (NIM and asset growth) and non-II (trading & FX: +12% QoQ on stronger trading and franchise sales). These, however, were offset by: i) Higher opex on catch-up spending and to spread out its seasonally higher 2H opex more evenly (vs backloaded to 4Q); and ii) lower non-loan impairment writebacks.

• NIM ticked up by 1bp QoQ (-2bps YoY) on funding optimisation initiatives in Malaysia (MY) and Singapore (SG) ahead of the US Federal Funds Rate (FFR) cut. These helped to cushion NIM pressure in Indonesia (IND). Looking ahead, 4Q NIM is expected to compress QoQ in MY and SG, but IND NIM could be stable QoQ. However, CIMB thinks the sequential NIM squeeze in 4Q24 would not be as severe as the 10bps QoQ drop in 4Q23, so this is likely to end up higher YoY.

• Balance sheet growth muted due to stronger MYR. On a constant currency basis, 3Q24 loan and deposit growth were +0.6% QoQ (+4.3% YoY) and -2% QoQ (+0.5% YoY), with the weaker deposit growth related to the release of costlier wholesale funding. CASA ratio was higher QoQ at 42% vs 2Q24’s 40.9%. Asset quality remains benign, with GIL ratio down 16bps QoQ to 2.34% while LLC was 104%.

• Other briefing highlights. FX impacted the CET-1 ratio by -10bps while the impending adoption of Basel III reforms for operational risk is expected to have a minor negative impact. CIMB sees increased volatility ahead, but thinks this could open up opportunities for client franchise income, be it fees or treasury sales – which collectively made up 72% of 9M24 non-II.

• Forecasts tweaked up but TP retained. We raise FY24-26F PATMI by 2%, 2% and 3% on higher non-II and lower credit cost. However, our MYR9.25 TP is unchanged, and includes a 6% ESG premium.

Source: RHB Securities Research - 29 Nov 2024