CIMB's ROE continues to trend higher to 12.0% in 3QFY24 from 11.5% in 2QFY24 supported by stronger income growth and lower provisions from improved asset quality. We continue to see its ROE expansion to be supportive of valuation and maintain our BUY recommendation with an unchanged TP of RM9.50/share based on CY26 P/BV of 1.2x supported by ROE of 11.8% with a premium of 3% based on 4-star ESG rating. Looking ahead, we see room for further uplift in ROE from: i) improvement in profitability of its digital business, CIMB Philippines and Touch 'n' go and ii) the potential growth in SME lending business from a low market share of 1% as well as the wealth management business in Singapore.

• Stronger operating income with earnings coming in within expectations. 9MFY24 net profit of RM5.9bil was within expectations, making up 75.2% of our full-year estimate and 77.1% of the consensus projection. Earnings rose 12.6% YoY in 9MFY24 driven by higher operating income and lower provisions, partially offset by increase in operating expenses (OPEX). QoQ, net profit grew by 3.5% to RM2bil supported by higher net interest (NII) and non-interest income (NOII) coupled with a decline in allowances for loan impairment.
• Gross loan grew modestly after accounting for FX translation impact with a slight improvement to NIM by 1bps QoQ in 3QFY24 from lower funding cost. YoY, loans grew by 1.2% in 9MFY24 supported largely by growth in consumer and commercial loans. Excluding FX impact, loans grew by 4.3% YoY. Domestic loans expanded by 4% YoY vs. the industry's 5.6%. In 3Q24, NIM improved by 1bps QoQ to 2.23%, driven largely by lower cost of funds in Malaysia and higher NIM in Singapore. 4QFY24 is likely to see some pressure on NIM from a seasonal year-end deposit competition in Malaysia while loan rates in Singapore adjust to the drop in 3-month SORA tracking cuts in the Fed Funds rate. CASA ratio rose to 42% in 3QFY24 from 40.9% in 2QFY24.
• 9M24 NOII climbed 14.4% YoY due to higher fees, commission, and client franchise income. 9M24 CI ratio improved to 45.9% vs.9M23's 46.5% supported by a positive JAW of 0.8% YoY.
• On track to meet Its FY24F targets. Improved asset quality with a lower GIL ratio of 2.3% and decline in credit cost to 25bps in 9MFY24. With a lower RWA, CET1 ratio rose 50bps QoQ to 15%. 9MFY24 saw total provisions declined by 3.9% YoY underpinned by higher loan recoveries and writebacks in Singapore. Loan impairment fell by 16.5% YoY from Indonesia as well as higher loan writebacks in Singapore. As a result of the improvement in asset quality, loan loss cover increased to 102.6% in 3QFY24 from 101.2% in 2QFY24.

Source: AmInvest Research - 28 Nov 2024