• We maintain BUY on CIMB Group Holdings (CIMB) with a revised fair value (FV) to RM9.10/share from RM8.70/share) pegging the stock to a FY25F P/BV of 1.3x (previously: 1.2x), supported by higher ROE of 11.8%. Our FV reflects a premium of 3% based on our 4-star ESG rating.
• We fine-tuned our FY24F/25F earnings by +1.3%/+0.9% after tweaking our credit cost assumptions lower.
• We attended the group's investor day yesterday where management presented on the strategic initiatives and financial performance of CIMB Singapore.
• CIMB's Singapore's earnings have been improving from the hit of impaired oil & gas and marine sector loans in 2020 (pandemic year). With the reshaping of its businesses more towards the higher risk-adjusted return businesses (consumer, commercial, treasury & markets, financial institutions) and an optimized deposit structure with a liability led strategy, revenue, and earnings of CIMB Singapore have been trending upwards. CI ratio declined to 43.1% in 1H24 vs. 56.6% in FY19 with an improved income vs OPEX, signifying better operating efficiency.
• Since the reshaping of the credit portfolio with a kitchen sinking exercise on the covid impacted oil & gas as marine sector loans in 2021, ECL have been declining. GIL ratio of CIMB Singapore has been holding up at 0.8%, below 1% in the past 1.5 years.
• Key strength of CIMB Singapore lies in its strong liquidity with low LDR of 67.8%. Opportunity lies ahead to increase it to 80-85% with expectations of a decline in 3-month SORA going forward which moves closely to the changes in US interest rates.
• With an optimized deposit structure over the years, NIM has expanded by 7bps to 1.41% in 1H24 from 1.34% in FY19 (pre-pandemic).
• What's new on CIMB Singapore: i. To be a niche challenger bank in Singapore and not just growing balance sheet at all costs. Focusing on growing assets which are RAROC accretive while limiting growth in mortgages where lending rates are competitive.
• Net write-back in credit cost on loans of 33bps in 1H24 will not be sustainable in the long run despite 2H24 will still see further write-backs from impaired loans in the oil & gas and marine sectors as well as adjustments in MEVs in the model from lower interest rates. Management guided its credit cost to reach a steady state of 30-40bps going forward excluding write-backs in provisions.
• To maintain CASA ratio at the high 40%. 1H24 CASA was 48.7%. Focus will be on CASA growth through the consumer, commercial banking and NBFIs segments. CIMB Singapore retail deposit market share has steadily risen to 1.9% in 1H24 from 1.4% in FY20.
• A core ROE at 15-18% will be more sustainable ahead compared to 23.9% in 1H24 which was supported by ECL writebacks.
• Focused on growing SME lending, bancassurance and regional wealth (preferred and private banking) business to accelerate earnings.
• We continue to like CIMB for the following reasons: i. High liquidity with a free float of 52.9% which will remain attractive to attract inflow of funds from foreign investors.
• Opportunities to ramp up market share for SME loans from a low 1% in Singapore with its low LDR. CIMB Singapore has advantages in a faster turnaround time for SME loans, competitive charges for fund transfers as well as accessible online banking for easy account opening.
• Slight NIM pressure on CIMB Singapore following the cuts in US Fed rates which will impact the 3-month SORA. This impact is expected to be milder compared to Maybank Singapore as CIMB has a much smaller operations in Singapore. With a high CASA ratio and low LDR, we foresee CIMB Singapore to be able to mitigate the pressures on NIM ahead.
• Further improvement in profitability of the digital businesses will contribute to an uplift in group ROE.
• Foreign shareholdings of CIMB rose to 33.9% in Aug 2024 from 32.1% in Jun 2024.

Source: AmInvest Research - 15 Oct 2024