CIMB Group (CIMB) reported a sequentially stronger, albeit marginal, 2QFY24 net profit of RM1.96bn (+10.6% YoY, +1.3% QoQ), with non-interest income (NoII) contributions continuing to support growth. Encouragingly, margins improved further due to lower funding costs while loan loss provisions also declined on better overall asset quality health. Cumulative 1HFY24 net profit of RM3.90bn (+14.0% YoY) is ahead of our expectations at 54% of full-year estimates, though within consensus at 51%. We lift FY24-FY26 net profit estimates by 6.2% on average as we impute better operating margins and lower credit costs. While we continue to remain optimistic over the Group’s medium to long-term prospects as it reaps rewards from its past and ongoing transformation initiatives, our call is lowered to Trading Buy given the strong run in its share price year-to-date, leaving limited upside to our revised dividend-derived target price of RM8.64, the latter raised to account for higher earnings and changes in valuation variables (ie. risk premiums).

• Operating income for 1HFY24 is higher by +8.7% YoY to RM11.23bn, withnet-interest income (NII) (+6.7% YoY to RM7.65bn) and NoII (+13.2% YoY toRM3.58bn) contributions remaining relatively healthy. NII growth is attributedto further expansion in margins due to lower funding costs while asset growthwas also steady. While NoII contributions softened sequentially (-5.1% QoQ)due to lower capital market and investment-related income, a stronger1QFY24 (due to the above, in addition to gains from non-performing loansales) still continued to a relatively robust 1HFY24.

• Net interest margin (NIM) improved another 4bps QoQ to 2.22% (1QFY24:2.18%), primarily due to lower funding costs as a healthy asset growth alsohelped. In line with the sequentially weaker NoII contribution, marginimprovements for its banking book (excluding treasury and market-relatedportfolio) was subdued at +3bps (1QFY24: +10bps to 2.69%). Managementwill continue to focus on improving its asset yields through targeted segmentalgrowth while also sustaining CASA balances to defend margins.

• Loans growth (+4.2% YoY, +0.6% QoQ) continues to be underpinned by allsegments and countries. Consumer banking (~52% composition) grew +5.3%YoY to RM232.5bn as wholesale banking (~31% composition) grew +1.3%YoY to RM136.4bn. By country, Malaysia (+4.8% YoY, 61% composition) isdriven by the non-retail (corporate and SME) segment while Indonesia (+5.9%YoY, 15% composition) is lifted by the retail and corporate segments. Loansgrowth target for 2024 is unchanged at between 5% and 7%.

• Asset quality. Total provisions for 1HFY24 fell 8.9% YoY to RM802.2m dueto ongoing improvements in its overall asset quality, particularly inSingaporean and Indonesian corporate exposures. Loan loss charge (LLC)declined notably to 20bps (1QFY24: 35bps), in part due to write-backs inSingapore. Management is maintaining FY24 guidance at between 30bpsand 40bps however. Gross impaired loans ratio is lower at 2.5% (1QFY24:2.6%) while allowance coverage is also better at 101.2% (1QFY24: 101.0%).

Source: PublicInvest Research - 2 Sept 2024