• NIM compression in 4Q24 to be more moderate than 4Q23
• Non-interest income expected to normalize with robust underlying core fee
• 4Q24 scheduled for release on 28 Feb. Maintain BUY and target price of RM9.30

NII growth to be support by quality loan growth

CIMB's net interest margin (NIM) compression for 4Q24 is expected to be more moderate relative to 10bps QoQ decline seen in 4Q23. The primary reason for NIM pressures stem from operations in Malaysia and Indonesia. Malaysia retail fixed deposit and wholesale rates are expected to experience a seasonal 5-10bps increase in 4Q24, though has subsequently normalize in Jan25. Significant drawdowns in wholesale banking in Dec24 further contributed to NIM compression. CIMB Niaga faced NIM pressures following Bank Indonesia's rate cuts in Sept24 (-25bps) and Jan25 (-25bps). The impact of a 25bps rate cut tends to be neutral or marginally positive for earnings in the medium term, however deposit repricing mismatches has led to some short-term volatility. Heighten competition for liquidity has also hindered the ability to fully pass on the benefits of rate cuts to deposit rates. Despite these pressures, CIMB has delivered strong asset growth, particularly in wholesale and corporate loans. Overall, net interest income is expected to remain robust on the back of healthy loan growth.

Other key takeaways

4Q24 non-interest income is expected to normalize, particularly in trading and forex-related income, which saw an exceptionally strong performance in 3Q24. Underlying fee income remains robust, despite the impact of one-off loyalty expenses associated with credit cards programs in Malaysia and Indonesia. Overall asset quality is anticipated to improve, supported by Malaysia auto segment and favourable trends in Thailand's consumer loans. While recent developments in the data centre sector have raised some concerns, CIMB does not foresee significant impact on its approved loan totalling RM1.5bn. Momentum in both drawdowns and additional approvals is expected to sustain its growth in 2025.

Maintain BUY and GGM-derived target price of RM9.30

We maintain our BUY rating with our GGM-derived target price unchanged at RM9.30 (based on a sustainable ROE of 11.2%, LTG 3.5%, and COE of 9.4%). Our TP implies a 1.3x P/B based on 11.2% ROE. We believe a premium is justified due to CIMB's disciplined strategy to drive ROE. Key risks to our BUY call include extended compression in NIM, an inflating cost base, rapidly deteriorating asset quality, and intense competition for low-cost deposits.

Source: Philip Capital Research - 31 Jan 2025