CIMB's 9MFY24 net profit (+13%) was within expectations on continued focus to secure bottomline through liability management. The group has yet to unveil its new long-term strategy roadmap but hinted it could involve strengthening its deposits franchise with asset management initiatives (possibly involving rebalancing loan yields and optimising its investment portfolio) to supplement earnings growth. Maintain MP and GGM-derived PBV TP of RM7.60.

9MFY24 within expectations. CIMB's 9MFY24 net profits of RM5.93b came in at 80% of our full-year forecast and 78% of consensus full-year estimates. We are cognizant for seasonal deposits competition and possible provision top-ups in the 4QCY period which could translate to a softer earnings report.

YoY, 9MFY24 net earnings expanded by 13% drive by higher quality NII (+6%) against a 4 bps decline in NIMs (to 2.21%) and 1.2% loans growth (-0.9% YTD with maturities mainly arising from construction-related borrowings). On a constant currency basis, loans would have grown by 4.3% instead. NOII (+16%) was uplifted by consumer-based fee income as well as better investment trading performances amid volatility in its key markets. Credit cost improved to 25 bps (-7 bps) thanks to more recoveries made during the period.

QoQ, 3QFY24 net earnings increased by 4% with a higher CASA mix (45.1%, +1.2ppts) translating to a 1 bps improvement to NIMs. NOII also saw sequential improvements from better trading and treasury income.

Highlights. CIMB's ROE growth strategy remains focused on profit retention with most efforts seen in its liability management initiative across its operating regions. On top of CASA-based efforts, a release of less profitable wholesale banking share and increased selectiveness in loan approvals would hold the group's guidance of of 2.22%-2.27%. This is despite more intense competition on fixed deposits typically expected in the 4QCY period .

With its targets being maintained, we call out the possibility for kitchen sinking of impairments, as observed in prior years to arrive at the lower end of CIMB's credit cost target of 30 bps. As of 3QFY24, group CET-1 ratio stacked up to 15.0% (FY23: 14.5%) which is the highest balance held and would provide greater allowance for dividends. We believe FY23's record payout of 66% (inclusive of 11% paid as specials) could be matched, if not beaten.

However, given that a 7.0 sen special dividend was already declared in Aug 2024, we doubt we will see another for FY24. Meanwhile, the upcoming adoption of Basel III looks to have a negative impact to capital but was guided to be a relatively small amount, hence will not hinder dividend capacity going forward.

Forecasts. Our FY24F/FY25F earnings were tweaked by 2%/1% on model updates, mainly reflected in asset yields and funding cost.

Maintain MARKET PERFORM and TP of RM7.60. Our TP is based on an unchanged GGM-derived FY25F PBV of 1.05x (COE: 11.2%, TG: 3.5%, ROE: 11.5%). We also applied a 5% premium granted by CIMB's 4-star ESG ranking thanks to its 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.

That said, its current share price indicate that it had already fully priced in FY24F ROE of 11.5%, which we have applied in our valuation, and we will assess 2025 strategies as it is unveiled. Assuming we maintain a COE of 11.2% (currently slightly higher than peers due to high beta nature), pegging to 12.5% ROE which is high range of targets, we would arrive at TP of RM8.55.

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.

Management Guidance

Source: Kenanga Research - 29 Nov 2024