Review

• CIMB reported a 9MFY24 net profit of RM5,928mn, translating to a 12.6% YoY (+3.5% QoQ) growth, thanks to higher operating income and lower loan allowances. CIMB’s reported net profit surpassed our expectations at 81% of our full-year forecast. 9M ROE stood at 11.7%, slightly above the FY24 guidance of 11.0-11.5%.

• Operating income broadened by 8.5% YoY (+2.5% QoQ), underpinned by a 6.0% YoY (+1.8% QoQ) and 14.4% YoY (+4.0% QoQ) expansion in the net interest income (NII) and non-interest income (non-NII), respectively. Yearly, non-NII was robust due to higher fee income (+11.3% YoY), driven by higher consumer fees, capital market activities, client franchise income, and trading and FX (+22.4% YoY).

• NII expanded YoY due to loan growth of 4.3% YoY – on a constant currency basis. YoY, net interest margin (NIM) compressed by 4 bps to 2.25%. By country, NIM declines in Malaysia (-4 bps) and Singapore (-1 bp) were cushioned by the expansion in Indonesia (+36 bps) and Thailand (+37 bps). Sequentially, NII growth was supported by a 1 bp increase in NIM due to improvements in the cost of deposits along with asset growth.

• CIMB's loans and advances portfolio has shown resilience and growth across all key segments and operating markets. Loans and advances continued to be supported by growths in Consumer Banking (+3.3% YoY) and Commercial Banking (+4.9% YoY). Wholesale Banking, however, reported a 4.5% YoY decline in gross loans. Excluding FX fluctuations, loans and advances were led by Indonesia (+6.4% YoY), Singapore (3.5% YoY), Malaysia (+4.0% YoY) and Thailand (+1.1% YoY).

• Total deposits contracted by 2.4% YoY (-4.2% QoQ), mostly due to an 11.1% YoY decline in deposits from Wholesale Banking. Deposit increases in Consumer Banking (+2.6% YoY) and Commercial Banking (+3.1% YoY) helped to cushion the overall decline. By type, CASA balances further improved, rising by 4.5% YoY (-1.8% QoQ), bringing the CASA ratio up YoY to 42.0% (September 2023: 39.2%).

• Operating expenses expanded by 7.7% YoY, broadly due to higher Technology (+9.3% YoY), Personnel expenses (+10.3% YoY) and Marketing expenses (+8.3% YoY). Admin & General declined by 0.4% YoY. Elsewhere, QoQ OPEX rose by 3.8% due to higher marketing expenses, personnel costs and sustained investments in IT. Nevertheless, the cost-to-income (CTI) ratio eased slightly to 46.5% vs. 46.9% a year ago.

• Total provisions rose QoQ by 14.7% but fell YoY by 3.9%. The sequential improvement was due mainly to higher provisions and lower writeback in non-retail. Higher recoveries and writebacks in Singapore drove YoY improvements. Taken together, the 9MFY24 loan loss charge improved to 25 bps vs. 32 bps in FY23, keeping it within management's FY24 guidance of 25-30 bps. Elsewhere, the gross impaired loans ratio also strengthened to 2.3% (FY23: 2.7%), while the allowance coverage climbed to 102.6% (FY23: 97.0%).
• CIMB remains backed by a decent capital position with a Common Equity Tier 1 (CET1) Capital Ratio and Total Capital Ratio of 15.0% and 18.9%, respectively. LCR remains comfortably above 100% for all banking entities.

Impact

• Adjusting our earnings forecast to align with CIMB’s 9M results performance, we raised FY24/25/26 net profit to RM7,664/8,034/8,563mn from RM7,291/7,690/8,240mn, respectively.

Outlook

• As CIMB advances with its Forward23+ strategic plan, the group's 9MFY24 performance aligns well with its 6-year objectives. On course, the 9MFY24 ROE of 11.7% is well within the target range of 11.5-12.5%. Additionally, the CIR at 45.9% is consistent with the goal of maintaining CIR below 46.9%. The cost of credit at 25 bps outperforms the guided range of 30-40 bps, while the CET1 ratio of 15% comfortably exceeds the >13.5% target. Moreover, the dividend payout aligns with the target of 55%. However, off course, loan growth of 4.3% (on a constant currency basis) slightly lags the 5-7% target.

• Management observes that external uncertainties persist in undermining fundamental concerns as volatility escalates. Nevertheless, management expects ongoing advantages from CIMB's diversified ASEAN portfolio and extensive client segments. In the short term, management is anticipated to stay agile with its deposit-led and client profitability strategies while emphasising efficiency and resilience. Seasonal factors are anticipated to lead to softer NIMs in the 4Q.

Valuation

• We raised CIMB’s TP from RM9.48 to RM9.68 due to the upward revision in earnings. Our valuation is based on an implied PBV of c. 1.37x based on the Gordon Growth Model and a 3% ESG premium. Buy maintained on CIMB.

Source: TA Research - 29 Nov 2024