Introduction to CIMB Group Holdings

CIMB Group, a powerhouse in Malaysia’s financial landscape, stands as the nation’s largest investment bank and the second-largest consumer bank. It also ranks among Southeast Asia’s leading universal banking groups. As of the latest analysis, CIMB’s share price is RM8.25 with a target price of RM8.12, indicating a slight downside of -1.6%, and the recommendation from UOB Kay Hian is to maintain a HOLD position.

Recent Performance and Key Financials

The group reported its 3Q24 earnings, showcasing a solid performance trajectory that aligns with market expectations. The net profit for 3Q24 was RM2,030.6 million, showing a year-on-year increase of 10.5% and a quarter-on-quarter rise of 3.5%. This performance brings the 9M24 earnings to RM5,927.6 million, marking a 12.5% increase year-on-year.

Revenue and Income Streams

CIMB’s income growth was significantly driven by a robust 20% increase in non-interest income, propelled by strong forex gains and a 10% rise in fee income from commissions and placement fees. However, net interest income witnessed modest growth of 3.7% year-on-year, slightly restrained by a 2bp compression in net interest margin (NIM).

Impairments and Provisions

The quarter saw a 68% year-on-year increase in impairments on debt instruments, although loan provisions improved by 15.8% due to higher recoveries. Net credit costs eased to 18bp from 20bp in the previous quarter, supported by stable asset quality.

Loan Growth and Asset Quality

Loan growth remained subdued at 4.3% for 9M24, aligning with the lower end of the guidance range of 4-5%. This strategic moderation aims to protect the NIM. Focus areas include consumer loans, which grew by 3.3%, and SME loans, which increased by 4.9%. Geographically, Malaysia reported a 4.0% growth, Indonesia 6.4%, Singapore 3.5%, and Thailand at a mere 1.1%.

Asset Quality

The group’s gross impaired loans (GIL) ratio improved by 20bp quarter-on-quarter to 2.3%, aided by both write-offs and recoveries. The loan loss coverage ratio increased slightly to 103% from 101% in the previous quarter.

Capital and Dividend Outlook

CIMB’s capital position has strengthened, with the Common Equity Tier 1 (CET1) ratio climbing to 15.0%, supported by risk-weighted asset optimization and earnings growth. The group projects a full-year dividend per share of 48 sen, including a special interim dividend of 7 sen, translating to a 64% payout ratio and a 5.8% dividend yield.

2024 Outlook and ESG Commitment

Looking ahead, the management has retained its 2024 guidance with expectations of an ROE between 11.0-11.5%, loan growth of 4-5%, cost-to-income ratio below 46.9%, and a stable to +5bp NIM. CIMB is also committed to environmental, social, and governance (ESG) initiatives, including providing RM30 billion in sustainable financing by 2040 and maintaining a 30% female representation on its board.

Valuation and Investment Recommendation

UOB Kay Hian maintains a HOLD rating for CIMB, with a target price unchanged at RM8.12. Despite the strong year-to-date share price gain of 40%, surpassing the KLCI’s 13% and the KL Finance Index’s 18%, the positive ROE growth trajectory is considered largely priced in.