• Keep BUY and MYR9.25 TP, 13% upside with c.5% FY25F yield. From yesterday’s pre-closed period meeting, we think CIMB’s upcoming 3Q24 results (out on 28 Nov) could feature mid-high single-digit YoY PATMI growth. Sequentially, we expect it to book flattish-to-slight PATMI growth, depending on how loan and other impairments pan out. While 9M earnings should trend ahead of 75% of FY24F, we are expecting a weaker 4Q. YTD, the stock has done well. Yet, we see room for valuations to rerate further, with a higher ROE target under the next mid-term plan as a catalyst.

• Expect stronger operating income,thanks to NII … In the meeting, the focus on NII was on “pricing”, ie NIM, rather than volume growth. The good news is that liability management in both Malaysia and Singapore should prove positive for group NIM QoQ and more than offset the 15bps QoQ NIM squeeze CIMB Niaga (BNGA IJ, BUY, TP: IDR2,300) reported in its 3Q24 results. Malaysia is enjoying the tail-end of earlier deposit repricing efforts and some optimisation of wholesale funding during the quarter. In Singapore, CIMB made a pre-emptive move to lower deposit rates ahead of the US Federal Funds Rate (FFR) cut. However, management expects NIM to compress QoQ in 4Q on the back of the seasonal deposit competition in Malaysia, and asset repricing in Singapore. CIMB said deposit rates had ticked up by 5-10bps in 4Q24 (in line with that in 4Q23), and these levels are expected to hold through to next year’s Lunar New Year festivities. On loans, growth in Malaysia remains modest while its overseas book will be impacted by a stronger MYR (currency impact to earnings is manageable).

• … and non-II, as trading and FX income rebounded from a softer 2Q. Also, based on CIMB Niaga’s numbers, gains from NPL sales should have improved QoQ as well. Apart from trading opportunities from lower bond yields, CIMB highlighted ongoing efforts to improve its client franchise trading and FX flows. Some tweaks to KPIs have started to be felt, while further structural changes as to how CIMB approaches this should start to kick in from next year. However, October has been a tough month and, while November is looking more upbeat, December is typically a slow month for client flows as well. As such, 4Q non-II is expected to ease sequentially.

• Asset quality still holding up. Delinquency trends for retail have been similar to that of 2Q, ie stable to slightly better while, for the corporate portfolio, management has not noted any major names going through stress or potential downgrades. In Thailand, CIMB is working on realigning the business model for the consumer segment but said its financial institutions group (FIG), treasury & markets and corporate segments are all doing well.

• Other highlights. We can expect HoH opex escalation in 2H24 due to bonus accruals (3Q24) and seasonal expenses in 4Q. On Basel III reforms, the impact of the new operational risk capital requirements next year is a slight negative to capital – but not significant enough to impact dividend payouts.

Source: RHB Securities Research - 7 Nov 2024