Date: October 14, 2024
Broker: Maybank Investment Bank Berhad

Overview of CIMB Group Holdings

CIMB Group Holdings (CIMB MK) is a leading financial services provider in Malaysia, offering a broad range of consumer and investment banking services. It holds a majority stake in PT CIMB Niaga, a prominent bank in Indonesia.

Key Financial Performance

• Share Price: MYR 8.25
• 12-Month Price Target: MYR 9.20 (+12%)
• 52-Week High/Low: MYR 8.49/5.57
• Market Capitalisation: MYR 88.3 billion (USD 20.6 billion)
• Free Float: 50%
• Major Shareholders:
  • Khazanah Nasional Bhd (21.6%)
  • Employees Provident Fund (14.8%)
  • Permodalan Nasional Bhd (9.9%)

Earnings and Profitability

• Operating Income (FY23): MYR 21.0 billion
• Pre-Provision Profit (FY23): MYR 11.1 billion
• Core Net Profit (FY23): MYR 6.98 billion
• Core EPS Growth (FY23): 25.5%
• Core P/E Ratio (FY23): 8.9x
• Book Value per Share (FY23): MYR 6.41
• ROAE (FY23): 10.7%
• Net Dividend Yield (FY23): 7.4%

Growth Prospects

CIMB Singapore (CIMBS), a crucial part of the group, has shown significant improvement. CIMBS now contributes 15% to CIMB Group’s pre-tax profit for the first half of 2024, up from 7% in FY19. It also contributes 10% to group loans and 14% to total deposits, all with just one branch. CIMBS has recovered from its challenging period in FY20, which was marked by heavy losses due to loan defaults in the oil and gas sector.

Strategic Initiatives for Growth

CIMB has laid out several strategies aimed at sustaining growth, improving efficiency, and enhancing profitability:

1. Optimizing Deposit Structure
   CIMBS has shifted its deposit structure towards higher CASA (Current Account Savings Account) contributions. This helps lower funding costs and improve interest margins. Commercial CASA now accounts for 35% of total CASA, with better yields from commercial banking than consumer and wholesale funding.

2. Wealth Management & SME Focus
   The bank is reshaping its portfolio by targeting higher returns through wealth management and treasury. Its efforts in capturing the SME sector, especially in Singapore, have much room for expansion, with just a 1% market share currently. CIMBS is also positioning itself to increase its SME loans through competitive online banking and favorable terms for regional transfers.

3. Cost Efficiencies
   Significant cost-saving measures have been taken, including reducing staff numbers from 1,300 in FY20 to 900 in FY21, relocating certain operations to Malaysia, and enhancing digitalization efforts. The cost-to-income ratio has improved from 65.9% in FY20 to 43.1% in 1H24.

4. Digitalization and Credit Risk Management
   The bank is driving digitalization to increase productivity and reduce costs. It has also reshaped its credit portfolio, pivoting towards more secured lending for SMEs and consumers, reducing its exposure to high-risk sectors like oil and gas, and increasing credit risk mitigation through government guarantees.

Financial Ratios and Forecasts

• Net Interest Margin (1H24): 1.41%
• Loan/Deposit Ratio (1H24): 67.8%
• Cost/Income Ratio (1H24): 43.1%
• Gross Impaired Loan Ratio (1H24): 0.8%
• Loan Loss Coverage (1H24): 159%

The group’s pre-tax profit is forecasted to grow to MYR 10.5 billion in FY24, with a core net profit estimate of MYR 7.73 billion. ROE is projected to remain strong, at 11.1% for FY24, with sustained dividend payments.

Regional Contributions and Opportunities

CIMB is leveraging its strong regional franchise to capture growth, particularly through increased cross-border banking activity between Singapore and Malaysia. The group aims to expand its SME and wealth management services, capitalizing on opportunities in bancassurance and commercial banking. The Malaysian workforce in Singapore presents a significant growth opportunity, with 215,000 Malaysian customers already in CIMBS by 1H24, up from 68,000 in FY20.

Risk Factors

As the second-largest financial institution in Malaysia, CIMB is exposed to economic volatility in its key markets, including Indonesia, Thailand, and Singapore. A downturn in the regional economy, particularly in Malaysia, could adversely impact the group’s performance. Additionally, any further reduction in interest rates in Indonesia could compress margins.

Conclusion

CIMB Group Holdings has demonstrated resilience and strong growth, particularly through its operations in Singapore. With well-defined growth strategies, improved financial ratios, and solid management, the group is well-positioned for future growth, with a target price of MYR 9.20.