CIMB’s 1QFY24 net profit (+18%) was above expectations on overall better-than-expected performance, thanks to its strong presence in both domestic and regional markets tiding against competition. Post-results, we raise our FY24F-FY25F earnings by 2%-4% to incorporate some strength from 1QFY24 results. As we are more upbeat on the group’s ROE trajectory, we raise our GGM’s ROE inputs and increase our TP by 15% to RM7.60 and upgrade CIMB to OUTPERFORM (from MARKET PERFORM).

Above expectations. CIMB’s 1QFY24 net profit of RM1.94b made up 27% of our full-year forecast and 26% of consensus full-year estimates. However, we deem this to be above expectations as the group could be poised to deliver better numbers ahead, thanks to higher-than-expected loans and non-interest income growth. No dividend was declared this quarter as expected, as the group typically pays biannually.

YoY, 1QFY24 net interest income gained 8% as although NIMs remain challenged (2.27%, -6 bps), loans growth was highly supportive at 7%. In addition, non-interest income rose by 27% thanks to better readings from both treasury and fee-based revenues. All in, the group reported higher net earnings (+18%) with cost-income (45.3%, -1.6 ppt) decompressing from the higher top line while credit costs were fairly stable (35 bps, -2 bps).

QoQ, 1QFY24 saw similar trajectories to its top line in addition to NIMs showing some improvement (2.27%, +1 bps) as margin pressures subsided. Net earnings grew by 13% also due to lower comparative administrative expenditure.

Briefing highlights. CIMB started the year on a strong note with domestic markets showing resiliency. That said, the group would prefer to observe ongoing trends before prompting for higher targets.

1. The group’s 1QFY24 loans growth of 8% is so far above its 5%-7% guidance as is matching its FY23 performance with strength reflected across the board. That said, it is noted that its Indonesia operation is experiencing slower growth as competition there intensifies. On the flipside, Singapore appears to be gaining momentum as wholesale appetite there develops.

2. Its 5 bps NIM expansion guidance appears to be shaping up following the group’s conscious decision to prioritise onboarding higher yielding accounts with deposit competition also easing.

3. Absolute provisions for the group appear to be rising on the back of higher impairments towards the consumer retail segments. While the group is also undertaking conservative provisioning onto certain accounts, it may likely still be within its FY24 target of 30-40 bps.

4. ROE for the group is landing at new levels of 11.4% in 1QFY24, in line with its Forward23+ efforts. The group expects further support in subsequent quarters via continued loans book growth, NIMs recovery as well as other income streams are to be generally better off. Meanwhile, the higher top line could serve to justify greater investments to boost capabilities and possibly uplift long-term ROE further.

Forecast. We raised our FY24F-FY25F earnings by 2%-4% from model updates.

Upgrade to OUTPERFORM (from MARKET PERFORM) with a higher TP of RM7.60 (from RM6.60). In lieu of more sustainable fundamentals, we opted to raise our GGM ROE inputs to 11.5% (from 10.5%) which led to a higher applied PBV of 1.05x (COE: 11.2%, TG: 3.5%). 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.

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

Source: Kenanga Research - 4 Jun 2024