CIMB’s 4Q23 results surprised on the upside, and this was sweetened further by a special DPS of 7 sen.
RHB Investment Bank’s (RHB) Malaysia Results Review note today (Mac 1) said the stock has done well YTD, and they see room for the momentum to continue on the back of consensus’ earnings upgrades, improving asset quality, and potential further capital returns from capital optimisation initiatives, among others.
At 0.97x P/BV vs FY24F ROE of 10.9%, valuations are undemanding.
RHB keeps to its BUY call with a new MYR7.35 TP from MYR6.88, 14% upside with c.6% FY24F yield.
CIMB is still a sector Top Pick
The 4Q23 results beat expectations with net profit of MYR1.7bn (-7% QoQ, +29% YoY) lifting FY23 earnings to MYR7bn (+28% YoY) – at 108% of RHB’s and 104% of consensus’ FY23F PATMI.
Out to Widen Profit Margins
Meanwhile, Kenanga Investment Bank (Kenanga) said CIMB’s FY23 net profit (+28%) was within expectations but surprised the firm with higher-than-expected dividends due to specials being declared.
Kenanga reckons the group is eyeing moderate but well managed growth in favour of regaining lost NIMs during FY23’s intense competition for funds.
Kenanga raised their FY24F earnings by 3% on model updates and maintain an MP with a higher rolled over GGM- derived PBV TP of RM6.60 (from RM6.30).
FY23 within expectation – CIMB’s FY23 reported net profit of RM6.98b met expectations. However, an 18.5 sen interim dividend and 7.0 sen special dividend announcement translated to a full-year payment of 43.0 sen (65% payout) which beat our anticipated 35.0 sen target.
The group appears receptive to offer more generous dividend disbursements going forward from its c.50% historical average.
YoY, FY23 net interest income declined slightly (-2%) owing to higher funding costs which dragged NIMs (2.22%, -29bps). That said, non-interest income surged 35% from better trading performances and fees.
Operating margins were relatively stable while lower credit costs (32 bps, -19bps) on improved asset quality especially in its retail segment. In addition to lower effective taxes, FY23 net profits came in at RM6.98b (+28%).
QoQ, 4QFY23 total income improved slightly thanks to support from better fees garnered while NIMs continued to be under pressure. Credit cost rose to 31bps (+10bps) during the quarter to top up on certain Thailand retail account, resulting in 4QFY23 net profit to report at RM1.72b (-7%).
Briefing highlights
The group had solidly met most of its FY23 targets, while only shy of achieving its cost-income target of <46%. Its FY24 targets would focus on growing sustainability and at a reasonable pace.
1. FY24 loans growth target of 5%-7% reflects a slowing momentum from its 8% trajectory in FY23. The group aims to keep profitability in mind and appears willing to compromise on some market share to bolster margins. Notably, Singapore and Indonesia had outperformed other regions with their loans book expansion and may continue to do so.
2. With regards to margins, most of its regional units are in lieu to reflect sequential recoveries with the similar intent to not overly compete in product pricing. Kenanga reckons this could be enabled by the brand stickiness, leading it to buck the trend amongst its large cap peers and to target NIMs expansion instead. Given the group has a leading position in its markets, improving NIMs could provide the greatest impact to its earnings.
3. Personnel cost was mainly affected by collective agreements seen in Malaysia in FY23. To balance its cost structure, the group shared that it is in the midst of optimising certain pillars. That said, Kenanga gathered that technology investments had also been substantial during the year.
4. Credit cost guidance of 30-40 bps demonstrates stability with the group being keener to reallocate its past overlays into more targeted segments of its books. That said, they appear to be mindful as to not over-provide in relation to its GIL which Kenanga believes could provide space for bite-sized write backs.
5. Stronger returns from its digital assets are likely to materialise with CIMB Philippines already breaking even for the group.
While they expected a weaker bottomline QoQ, non-II was more robust than expected while credit cost was lower than expected on benign asset quality. FY23 reported ROE of 10.7% is within the 10.2-11% ROE target, while CET-1 was solid at 14.5% (4Q22: 14.5%).
CIMB declared an all-cash, second interim DPS of 18.5 sen (4Q22: 13 sen) and surprised with a special DPS of 7 sen as part of its capital optimisation plan.
Total FY23 DPS was 43 sen (FY22: 26 sen), which translates to a payout ratio of 66% (55% payout, ex-special dividend).
Results highlights
NIM compressed 15bps QoQ due to the seasonal deposit competition in Malaysia and Indonesia, cushioned by NIM expansion in Singapore.
However, this was partly offset by robust non-II from consumer and wholesale fees. The loan and deposit growth momentum were strong at 2% QoQ or 8% YoY. Loan growth was broad-based while, for deposits, CASA rose 7% QoQ or 11% YoY.
CIMB attributed this to its earlier initiatives, which have led to strong wholesale CASA traction. As such, its CASA ratio of 42.1% is now close to the pandemic highs of 42-44%.
Meanwhile, GIL improved further (-14% QoQ, -12% YoY) aided by write-offs during the quarter. GIL and LLC ratios were 2.7% and 98% respectively.
Outlook and briefing highlights
CIMB guided for 2024 ROE of 11-11.5%, which would be slightly short of the 11.5-12.5% target under its Forward23+ ambition.
CIMB pointed to NIM (2023 NIM: -29bps YoY) and capital drag (CET-1 of 14.5% vs >13.5% budgeted) as key factors.
RHB said the focus this year will be managing funding cost, which is expected to support the guided stable to slight NIM expansion (+5bps). Similar to some of its peers, it sees healthy loan demand but will be willing to sacrifice volume to preserve NIM.
Hence, 2024 loan growth is guided for 5- 7%, with Malaysia and Indonesia growing within the guided range.
Finally, CIMB thinks a 55% dividend payout ratio can be sustained, but it plans to relook at this if there is room to optimise capital further.
Forecasts and TP raised
RHB increases its FY24-25F PATMI by 9-10% following the better-than-expected results and raised their TP to MYR7.35 which includes an unchanged 2% ESG discount, based on CIMB’s 2.9 ESG score.
Forecast – Post results, Kenanga tweaked their FY24F earnings by 3% as they incorporate FY23 full-year numbers into their model.
Kenanga maintains MARKET PERFORM with a higher TP of RM6.60 (from RM6.30), as they rolled over their valuation base year to FY25F. Their TP is based on an unchanged GGM-derived PBV of 0.92x (COE: 11.2%, TG: 3.5%, ROE: 10.5%).
Kenanga 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 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.
That said, Kenanga believe its merits could have been fairly priced following the reemergence of foreign shareholders into Malaysian equities, stabilising CIMB’s risk-to-reward.
Risks to Kenanga’ call include: (i) higher/lower-than-expected margin squeeze, (ii) higher/lower-than-expected loan growth, (iii) better/worse-than-expected asset quality, (iv) slowdown in capital market activities, (v) currency fluctuations, and (vi) changes to the OPR.
