Date: October 17, 2024
Broker: CGS International Securities
Overview
CIMB Group Holdings Bhd is highlighted as a key player among Malaysian banks, with significant exposure in both Malaysia and Singapore. The company is positioned to benefit from economic developments in the region, especially in Johor, due to its well-established presence.
Strategic Importance in Johor-Singapore Economic Zone
CIMB is seen as one of the main banking beneficiaries of the positive economic developments in Johor. The company’s dual presence in Malaysia and Singapore positions it to capture additional business flows, fee income, and credit demand due to the growing economic activity in the Johor-Singapore Special Economic Zone and Special Financial Zone at Forest City.
CIMB Singapore (CIMB SG) as Key Profit Driver
CIMB SG is identified as a primary contributor to the overall profit growth of the CIMB Group for the fiscal year 2024 (FY24F). Key factors driving this growth include:
- Credit Cost Write-Backs: Reduction in credit costs, including net write-backs in recent years.
- Expansion in Non-Interest Income: Strong growth in non-interest income streams.
- Operational Efficiency: Continuous improvements in the cost-to-income ratio, which dropped significantly from 65.9% in FY20 to 50.1% in FY23, and further to 43.1% in 1H24.
Financial Performance of CIMB SG
CIMB SG has shown robust financial growth over recent years:
- Core Net Profit CAGR: From FY19 to FY23, a 12.1% compound annual growth rate was recorded.
- Loan and Deposit Growth: CIMB SG’s loans grew by a 4-year CAGR of 4.3%, while its total deposits increased by 11.2% to S$21.9 billion in 2023.
- Pre-Tax Profit: The pre-tax profit turnaround from a loss of S$348 million in 2020 to positive growth, with an expected solid 56.7% annual growth in 2024.
Strategic Shift from Scale to Returns
CIMB SG has transitioned its strategy from focusing on scale (2009-2019) to optimizing returns (2020-2024):
- Cost Efficiency Initiatives: Regionalization, digitalization, and workforce optimization to enhance productivity and reduce costs.
- Higher-Return Business Portfolio: Shifting focus toward growing CASA (current account savings accounts), SME lending, and bancassurance.
Dividend Outlook and Re-Rating Catalysts
CGS International reiterates an “Add” recommendation on CIMB, driven by:
- Potential Dividend Increases: Improvement in capital management, with a dividend yield projected at 5.8% for FY24F.
- Net Interest Margin (NIM) Improvements: Expected to boost the company’s outlook further.
- Cost Savings Initiatives: CIMB’s Forward 23+ transformation program has helped achieve significant cost savings of around RM1 billion from 2020-22.
ESG Commitment
CIMB Group Holdings is also recognized for its strong Environmental, Social, and Governance (ESG) standards:
- Sustainable Finance: Commitment to sustainable finance, with targets under Green, Social, Sustainable Impact Products, and Services (GSSIPS) tripling from RM26.5 billion in FY21 to RM86.7 billion in FY23.
- Net Zero Targets: The Group aims to achieve net zero GHG Scope 1 and 2 emissions by 2030, and overall net zero emissions by 2050, including Scope 3 and financed emissions.
Risks and Challenges
Key downside risks highlighted include:
- Asset Quality: Potential deterioration, particularly in Indonesia.
- Net Interest Margin Pressure: Possible contraction due to competitive deposit rates.
Shareholding and Financial Metrics
- Major Shareholders: Khazanah (23.0%), EPF (13.8%), and PNB (11.1%).
- Key Financials:
- Net Profit Forecast: RM7,684 million for FY24F, increasing to RM8,725 million by FY26F.
- Operating Revenue: Expected to grow steadily from RM22,688 million in FY24F to RM25,397 million by FY26F.
- Cost-to-Income Ratio: Projected to remain competitive, maintaining a decline trend.
