We maintain our GGM-derived PBV TP of RM7.60 (COE: 11.2%, TG: 3.5%, ROE: 11.5%). The group broke down its decarbonising targets for high carbon emitting sectors for 2030, being the first amongst the local banks. Chief sectors include oil & gas and real estate. Accelerated commitment and efforts from the group also support our 4-star ESG scoring for the stock. Maintain our forecasts, OUTPERFORM call and TP of RM7.60. CIMB is one of our 3QCY24 Top Picks.

CIMB had previously committed itself into achieving net zero operational greenhouse gas (GHG) emissions (scope 1&2) by 2030, and further extended into net zero GHG by 2050. It had indicated to prioritise high-emitting sectors to decarbonise to be: (i) oil & gas, (ii) real estate;, (iii) thermal coal mining, (iv) cement, (v) palm oil, and (vi) power utilities.

To achieve these targets, the group had outlined the following initiatives.

1. Oil & Gas. While the sector only accounts for 2% of the group’s overall loans book, it is identified to be one of the more urgent with regards to decarbonisation as lowering dependence on its products may accelerate the adoption of more ecofriendly substitutes. It could also lead to stronger headway in the development of sustainable energy solutions and engineering in the long-term.

To decarbonise the sector, CIMB had previously abstained from providing new financing to upstream oil fields in 2021. Going forward, its exposure to this sector may be mostly skewed towards financing diversification strategies for its existing oil & gas accounts. Through its networks, the group may also be able to facilitate reducing their operational emissions intensity to meet their respective net zero strategies.

2. Real estate. To CIMB’s total portfolio, real estate (both retail and non-retail mortgages) makes up 38% of the group’s total loans book but make up 17% of its overall financed emissions. As the sector likely has the largest physical footprint, more meaningful improvements to the sector may be dependent on the overall power grid’s decarbonisation.

That said, the group sees opportunities in decarbonising its portfolio by financing more energy-efficient buildings and developments. It may also provide stronger support to funding energy transition initiatives (i.e. renewable energy solutions) as well as facilitating more effective recording and reporting of energy consumption. Further collaboration with clients may in turn lead to better development and implementation of net zero plans in the future.

Aside from its decarbonisation efforts, CIMB highlighted strategies to uplift financial inclusivity amongst the underserved communities. Between CY24-CY28, the group aims to outreach up to 378k vulnerable customers with insurance and wealth building products and 560k vulnerable customers with beyond-savings accounts. The hope is to promote wealth generation for these customers which we believe could in turn mature into high quality accounts.

Forecast. Maintained.

Maintain OUTPERFORM and TP of RM7.60. Our TP is based on an unchanged GGM-derived PBV of 1.05x (COE: 11.2%, TG: 3.5%, ROE: 11.5%) against our FY25F BVPS of RM6.91. We also applied a 5% premium granted by CIMB’s 4-star ESG ranking, with the abovementioned emboldening our views for CIMB to be amongst the forefront in long-term sustainability efforts. 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. CIMB is one of our 3QCY24 Top Picks.

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 Jul 2024