We maintain our GGM-derived PBV TP of RM6.60 (COE: 11.2%, TG: 3.5%, ROE: 10.5%). The group looks to keep income sustainability as its chief priority as over-competing may lead to diluted ROE.  This appears to be their stance in both loans and deposits markets, with Indonesia still being one of the key pillars of growth.  Conservatively, the group has not largely factored infrastructure projects within its growth projections for FY24. Maintain our forecasts and MP call.

CIMB hosted a sell-side 1QFY24 pre-results briefing yesterday. Key takeaways are as follows:

1. Moderate loans growth to be profitably selective. From the group’s 5%-7% loans growth target for FY24, it opines that its Malaysian segment could improve by 5% as well, indicating that its other regions (Indonesia, Thailand) could carry a heavier weight.

This however, does not wholly include the possibility of lumpy infrastructure projects that is anticipated in 2HFY24. With regards on its strategy, CIMB appears adamant to only pursue higher yielding accounts and to not overly compromise on its wholesale pricing. On that note, we see a possibility of upside to its loans target should terms ultimately be favourable to CIMB.

2. NIMs expansion may hit the brakes. We gradually observe the lowering repricing of deposit products in the market, which should alleviate NIMs as asset yields increase. The group highlighted that sequential trends continue to reflect so, but may likely stagnant in 2HFY24 as fewer repricing opportunities may emerge and is reflective of the group’s modest guidance of up to 5 bps improvement in NIMs in FY24. We believe this could be due to its peers being possessive of market share and may be more willing to compromise on slightly higher funding costs.

3. NOII could remain supportive. FY23’s NOII attributed by investment trading and forex expanded by 78% YoY. While the group did not guide on its specific full-year prospects, sequential improvements could be expected in line with higher market activity as observed in 1QCY24. This could be tied to expectations for more relaxed monetary policies and economic prospects, which we opine could sustain at least throughout 1HFY24, with 2HFY24 possibly seeing headwinds should expectations pivot from global elections.

Forecast. Post update, we leave our earnings forecasts for CIMB unchanged for now, pending group-level earnings results to be released end-May 2024.

Maintain TP of RM6.60. Our TP is based on an unchanged GGM- derived FY25F PBV of 0.92x (COE: 11.2%, TG: 3.5%, ROE: 10.5%). 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 of which most of its peers are lacking. CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth (21% vs. industry average of 8%) while offering attractive dividend yields (c.6%) in the medium term. That said, we believe its merits could have been fairly priced following the reemergence of foreign shareholders into Malaysian equities, stabilising CIMB’s risk-to- reward. Maintain MARKET PERFORM.

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

Source: Kenanga Research - 7 May 2024