CIMB Group Holdings (CIMB MK)

Recommendation: BUY
Target Price: MYR 9.20
Stop Loss: Not specified
Date of Recommendation: 1st September 2024
Broker: Maybank Investment Bank Berhad

Investment Thesis: CIMB Group Holdings – Strong Earnings and Attractive Dividend Yield

CIMB Group Holdings continues to demonstrate strong financial performance, with its 2Q24 results coming in within expectations. The group’s earnings were bolstered by improved net interest margin (NIM), lower credit costs, and solid growth in non-interest income. The company’s ability to maintain a high dividend payout ratio, combined with robust capital ratios, makes it an attractive investment for those seeking both growth and income.

2Q24 Financial Performance: CIMB reported a net profit of MYR 1.96 billion in 2Q24, representing a year-on-year (YoY) increase of 11% and a quarter-on-quarter (QoQ) growth of 1%. For the first half of 2024, the group’s net profit reached MYR 3.9 billion, up 14% YoY, which is in line with the full-year forecast.
Loan Growth: Group loans expanded by 4.2% YoY, with higher growth rates in key markets such as Indonesia (+5.9%) and Singapore (+7.9%). Although loan growth trailed the management’s target, the focus on higher-yielding assets contributed positively to the group’s NIM.
NIM Improvement: The group’s NIM improved by 4 basis points (bps) QoQ to 2.22% in 2Q24, driven by a favorable shift in the asset mix and effective cost control measures. This marks a continuation of the positive trend seen in 1Q24, where NIM expanded by 3 bps.
Non-Interest Income Growth: Non-interest income (NOII) rose by 14% YoY in 1H24, supported by strong growth in fee income (+6% YoY) and investment income (+20% YoY). This diversification of income sources further strengthens the group’s financial position.
Credit Cost Management: Credit costs improved, with a decline in the gross impaired loans (GIL) ratio to 2.5% as of June 2024, down from 2.7% at the end of 2023. The loan loss charge also decreased to 20 bps in 2Q24, contributing to a lower overall credit cost for the year.
Dividend and Capital Ratios: CIMB declared an interim dividend per share (DPS) of 20 sen and a special DPS of 7 sen, resulting in a total payout of 27 sen for 1H24. This represents a payout ratio of 74%, reflecting the group’s strong capital position, with a CET1 ratio of 14.5%.

Valuation and Financials:
CIMB is trading at a price-to-book value (P/BV) of 1.2x, with a forward price-to-earnings (P/E) ratio of 11.3x. The target price of MYR 9.20 offers an upside potential of 12% from the current price, coupled with an attractive dividend yield of 5.7% for FY24.

Share Price Catalysts:

Continued improvement in NIM and credit cost management.
Sustained growth in non-interest income, particularly from fee-based services.
Positive market sentiment driven by the group’s strong earnings and attractive dividend yield.

Company Overview: CIMB Group Holdings is a leading financial services provider in Malaysia, with a significant presence in key ASEAN markets. The group offers a wide range of financial products and services, including consumer banking, investment banking, Islamic banking, and asset management. CIMB’s strong regional footprint and diversified business model position it well for continued growth in the competitive banking landscape.

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