CIMB Group Holdings Berhad’s (CIMB) portfolio of digital assets provide assurance that the group may withstand the disruptions in the digital finance industry, Kenanga Research said.
In its Company Update note today (Nov 1), the research house said that it is assured by portfolio of digital asset with several key names looking to turn black soon.
“We opine that with its capabilities at hand, the group may not be overly disrupted by the entry of digital banks in Malaysia in the coming months,” it said.
Kenanga maintains its OUTPERFORM call, and its GGM-derived PBV TP of RM6.30 (COE: 11.2%, TG: 3.5%, ROE: 10.5%). It also applied a 5% premium granted by CIMB’s 4-star ESG ranking thanks to headways in green financing.
“CIMB is one of our 4QCY23 top picks. Post-update, we also maintain our financial year 2023 and 2024 (FY23F/FY24F),” it said.
Kenanga noted that recently CIMB hosted an Investors Day to highlight its digital businesses.
“Aside from more prominent local operations via Touch ‘N Go and TNG Digital (TNGD), CIMB Philippines and CIMB Vietnam were also frontrunners with digital banking solutions in those regions,” it said.
One of the key takeaway from the event, Kenanga noted is CIMB’s digital assets is the key component to its ROE expansion.
“CIMB’s digital assets appear to now be operating more efficiently, thanks to their consistent growth in market share expansion and scale.
“Accordingly, losses have narrowed drastically and are expected to be earnings accretive to the group, possibly contributing to group-level ROE expansion by 17bps,” it said recalling that CIMB’s Forward23+ target for ROE is 11.5%-12.5%,” it added.
The research house also noted that the group’s wholly-owned Touch ‘N Go unit remains a key component to its growth strategy for its stronghold in payments solution.
“The increasing integration of its services for day-to-day transactions may likely be unhindered, given a significantly heavy barrier of entry into its single provider market. The group opines there are more opportunities with the possibility of open payment platforms as well as an evolving B2B landscape,” it said.
Kenanga also noted that TNGD could be a rising gem, as it looks to capitalise on a specialist mindset as serving customers within its ecosystem may be more profitable than in a digital banking model.
‘As of 1HFY23, it is estimated that TNGD has over 20 million registered customers, of which c.15 million were acquired via e-KYC.
“In addition to a network of over one million merchants and an estimated more than 50% e-money market share (RM42.4 billion), the group is hopeful it could achieve profitability in FY24,” it said, adding that the launch of GoPinjam for short-term could serve as precursor to other digital banks in the country.
It also noted that CIMB Philippines, which is established on 2018 with a heavy focus on mobile based and digital offerings, could be on a path to breakeven thanks to strong collaborations with partners such as Shopee.
“Thanks to a solid ecosystem, CIMB Philippines had acquired 7 million customers in May 2023 of which 55% are first-time bankers. The group believes that CIMB Philippines could break even within FY23 as it is getting closer to sustainable economies of scale,” it added.
However, there will be a greater tussle for the group in Vietnam, who was a frontrunner introducing digital solutions in the country, being the first to issue a virtual debit card there, it added.
“(Still), it is not the largest digital bank in Vietnam with 850k customers in 1HFY23, behind VPBank Neo (4.5 million), CAKE (3 million) and TNEX (1.5 million). That said, the group will continue to maintain its presence there while learning from other regions,” it said.
CIMB, Kenanga said, is supported by its regional diversification, especially in terms of NOII which most of its peers lack.
“CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth (21% vs. industry average of 8%) while offering attractive dividend yields (c.6%) in the medium term.
“The group’s recent return to double-digit ROE delivery could be a clarion call to past investors as well,” it said.
Kenanga’s risks to call include higher-than-expected margin squeeze, lower-than-expected loan growth, worse-than-expected deterioration in asset quality, slowdown in capital market activities, unfavourable currency fluctuations, and changes to the OPR.
