The CIMB management is fairly optimistic about hitting its 2024 ROE target of 11-12% and Maybank IB is also of the view that this is within reach. Valuations are undemanding with the stock trading at a prospective FY23 P/BV of just 0.9x (ROE: 10.4%).
Research house Maybank IB, expects the group’s operations to have fared decently in 4Q22, in that domestic loan growth continued to be well supported, while fee/noninterest income has been more robust QoQ. Moreover, asset quality is holding up. The challenge has been in preserving interest margins, as deposit competition in 4Q22 was more intense QoQ. Nevertheless, margin pressure domestically is likely to be offset in part by margin expansion in Singapore and Indonesia.
The group is fairly optimistic about hitting its 2024 ROE, particularly through the reshaping of its business portfolios in Indonesia, Singapore, and Thailand, which has contributed to cost savings and better asset quality.
Maybank IB forecasted ROE of 10.8% for FY24E continues to conservatively impute elevated credit cost levels, which could potentially surprise the upside. The stock currently trades at a FY23E P/BV of just 0.9x for a prospective ROE of 10.4%, which is undemanding, in its view.
Deposit competition in 4Q22 continued to be intense, particularly in the 12-month tenure space. Cost of funding (COF) pressure was more significant in 4Q22 vs 3Q22. There have been various contributory reasons to this phenomenon including the repricing of deposits from recent rate hikes, but liquidity remains more than ample. Margin pressure was highest in Malaysia, but there were several offsets in 4Q22 e.g. margin expansion in Singapore and Indonesia.
The group is of the view that there will be two more rate hikes in Malaysia in 1H23. Barring the positive impact of the expected rate hikes, management is more cautious about NIMs into 2023.
As for assets, the management sees no notable increase in default risks on the non-retail side. On the consumer front, delinquencies continue to tick upwards, as expected. Current levels are close to, but still below, pre-pandemic levels. Previous guidance has been for a QoQ pick-up in 4Q22 provisions due to a) higher overlays, b) higher provisions in Malaysia and c) raised provisions in Indonesia against its legacy steel exposure (current provision levels against this account is said to be market leading).
4Q22 saw good fee and trading income and should see a sequential QoQ pick-up in NOII. Into 2023, management expects a pick-up in transactional fees. As for investment banking, there has been a pick-up in the deals pipeline, but there is less visibility of the pipeline into 2H23. Trading and forex income were weak in 2022 and should improve in 2023.
Domestic loan growth looks well supported into 2023. However, the priority is on building its deposit franchise without compromising on margins. As such, the group’s loan growth strategy will be driven primarily by its deposits strategy.
The refocus on consumer has served to address that problem. Moreover, CIMB Niaga’s cost of funds is now more in line with that of the larger Indonesian banks. In Thailand, closing town the commercial book has helped to drive overall costs down. Domestically, the group’s cost/income ratio is now closer to that of its peers, and cost control will continue.
