We maintain MARKET PERFORM and our GGM-derived PBV TP of RM7.60 (COE: 11.2%, TG: 3.5%, ROE: 11.5%). 4QFY24's milder note with NIMs and NOIIs does not come as a surprise, coming off from a higher base in 3QFY24. We expect CIMB to continue to focus on value and earnings sustainability over volumes and market share in the near term, to be unveiled from its new long-term strategy plans.

CIMB hosted a sell-side 4QFY24 pre-results briefing. Key takeaways are as follows:

- Sequential dip in earnings in tow. Referencing the group's FY24 ROE target of 11.0%-11.5%, 4QFY24 earnings could range between RM1.54b-RM1.88b i.e. 7%-24% softer than 3QFY24's RM2.03b net profit while could outperform 4QFY23's RM1.72b.

Leading this would be an anticipated 4QFY24 NIM contraction with deposit competition keeping funding cost in Malaysia lofty. Meanwhile, Niaga's navigation around 18 Sep 2024's 25 bps cut by Bank Indonesia's policy rate coupled with tighter liquidity scene there could also translates to more aggressive deposit rates. Looking forward, its Malaysian operation is expected to normalise although Indonesian markets are once again adjusting to another 25 bps cut in 15 Jan 2025, which is likely to press margins there further. CIMB's FY24 NIMs guidance remains stable to +5bps from FY23's 2.22%.

Additionally, the group's strong 3QFY24 trading and forex income from heightened activities and sentiment appears to be downplayed for 4QFY24, translating to softer comparable NOIIs.

- Insulated from shaky data centre landscape. CIMB has limited exposure in the developing data centre space with only RM1.5b in loans approved so far (<1% of total Malaysian loans). This arose from their previous stance to not overly expand into ongoing developments, citing preference for higher risk-adjusted return of capital (RAROC) portfolios over volumes.

- Expected strategies likely to be deployed moving forward. As we await the formal disclosure of CIMB's strategy for FY25 and beyond, the group shared aspirations dive deeper into higher RAROC businesses for its Niaga and Singapore units. Meanwhile, there appears to be a continued intent to rejuvenate CIMB Thailand to focus on higher growth markets as efforts to fix inefficiencies from its consumer business is mostly well implemented.

Aside from organic growth, we do not rule out inorganic appetite for its next growth phase given that its CET-1 of 15.0% has now exceeded the Forward23+ goal of 14.5% by 0.5 ppt (or RM1.8b). Such equity could be of use as part of a payment option should CIMB be interest in acquisitions that align with its RAROC focus.

Forecast. Maintained. CIMB's 4QFY24 results will be released on 28 Feb 2025.

Maintain MARKET PERFORM and TP of RM7.60. Our TP is based on an unchanged GGM-derived FY25F PBV of 1.05x (COE: 11.2%, TG: 3.5%, ROE: 11.5%). 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 while offering attractive dividend yields (c.6%) in the medium term. That said, its current share price indicates that it had already fully priced in FY24 ROE of 11.5% which we have applied in our valuations. We will assess its 2025 strategies as it is unveiled.

Risks to our call include: (i) higher/lower-than-expected margins, (ii) higher/lower-than-expected loan growth, (iii) better/worse-than-expected asset quality, (iv) changes in capital market activities, (v) currency fluctuations, and (vi) changes to the OPR.

Source: Kenanga Research - 31 Jan 2025