Kenanga Research downgraded its call to MARKET PERFORM from OUTPERFORM for CIMB Group Holdings Bhd (CIMB) as it believes the group’s merits could have been fairly priced following the reemergence of foreign shareholders into Malaysian equities, stabilising its risk-to-reward.
The research house maintained our FY23F and FY24F numbers, its target price (TP) of RM6.30, based on an unchanged Gordon growth model (GGM)-derived FY24F price-to-book-value (PBV) of 0.92x.
The cost of equity (COE) is at 11.2%, transaction guaranteee (TG) at 3.5% and return on equity (ROE) at 10.5%.
“We also applied a 5% premium granted by CIMB’s 4-star ESG ranking thanks to headways in green financing. Fundamentally, the stock is supported by its regional diversification, especially in terms of the net order imbalance indicator (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 of 6% in the medium term,” it said in its Company Update today (Jan 31).
Kenanga said the group looks to close its FY23 with few surprises, supported by stable delivery in net interest margins (NIMs) and asset quality.
“We continue to anticipate CIMB to generate strong earnings, backed by its growing regional footprint but its positives could have been fairly captured in the recent price rally,” it said.
The key takeaways include the group’s updates on margins competition, credit quality, wholesale ecosystem and further cost savings.
The research house said aside from year-end seasonal trends, the group opines that moderating deposits competition could take some pressure off funding cost over the recent months.
“This appears more prevalent on the retail segments with non-retail products remaining slightly tight. Per the group’s FY23 target, a 15 to 20 basis points (bps) NIMs compression is expected which reflects an upside bias to 4QFY23 performance (9MFY23: 2.25%, 9MFY22: 2.49%),” it said.’
Kenanga said the group’s credit quality in good terms, as during its 3QFY23 reporting, CIMB narrowed its FY23 credit cost guidance to 35 to 45 bps from 40 to 50 bps on better delinquency rates.
“The group opines that its key markets are likely to stay favourable supported by macros being intact, albeit with CIMB Thailand seeing some isolated pains. That said, we believe there could be minor upside bias to FY24 reporting, due to its depleting overlays.”
Other takeaways include the group is restructuring its wholesale ecosystem to unlock further opportunities such as enabling greater cross-selling opportunities but this could led to certain right-sizing of personnel on the operating level.
“(In addition), further cost savings may require deeper planning. Following the completion of CIMB’s 3-year cost take-out initiatives of RM1.2 billion, the group had previously indicated that it would explore further opportunities to improve its cost efficiency.
“At the moment, it appears that such efforts may only crystallise by FY25 as the group would likely require more time to identify further sustainable measures.
The risks to CGS-CIMB’s call include higher or lower-than-expected margin squeeze, higher or lower-than-expected loan growth, better or worse-than-expected asset quality, slowdown in capital market activities, currency fluctuations, and changes to the overnight policy rate (OPR).
