CIMB: Robust Non-Interest Income Boosts Earnings Amidst NIM Headwinds
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The financial institution has reported a resilient third quarter for fiscal year 2025, with net profit rising 2.3% quarter-on-quarter to RM2.08 billion. This strong performance was primarily driven by robust non-interest income (NOII) growth, which effectively cushioned the impact of net interest margin (NIM) compression. For the cumulative nine months of FY25, net profit reached RM5.94 billion, aligning with both the institution’s own and consensus estimates. The institution also unveiled a new capital return program, signaling a commitment to enhancing shareholder value.
Performance Review
The institution’s 3QFY25 net profit saw a 10% quarter-on-quarter increase, benefiting significantly from a 20.3% quarter-on-quarter surge in NOII. This robust NOII growth was attributed to higher trading and foreign exchange income, strong non-performing loan (NPL) sales, and an increase in fee-based income, particularly from enhanced wealth management activities and cross-selling initiatives. Asset quality also showed improvement, with the gross impaired loans (GIL) ratio decreasing from 2.1% to 1.9% quarter-on-quarter, and the allowance coverage ratio strengthening to 102.8%. Total provisions consequently saw a sequential decline, boosted by higher corporate recovery efforts in Malaysia.
Operational Dynamics and Challenges
Despite the strong NOII performance, the institution faced persistent headwinds on its net interest margin (NIM), which declined by 7 basis points quarter-on-quarter to 2.08%. This compression was primarily due to multiple rate cuts across its operating countries. Management remains proactive in asset-liability management to mitigate these impacts and maintains its NIM compression guidance of 5-8 basis points. Additionally, loans growth was soft, contracting by 0.2% quarter-on-quarter, influenced by reduced wholesale banking loans and unfavourable foreign exchange translation effects from Indonesia. Operating expenses increased by 9.4% quarter-on-quarter, largely due to higher bonus accruals, though partially offset by lower technology and marketing costs, pushing the cost-to-income ratio to 46.9%.
Future Outlook and Shareholder Returns
Looking ahead, the institution anticipates a recovery in loans growth during 4QFY25, spurred by commercial and consumer lending. NIM is expected to stabilize as the group continues to optimize its funding costs. In a significant move to enhance shareholder returns, the institution announced a new capital return program, targeting the distribution of up to RM2 billion to shareholders by the end of 2027. This includes a special dividend of 7 sen, bringing the year-to-date dividend per share to 26.8 sen. The institution’s deposit-led strategy continues to yield positive results, with deposits growing by 1.5% quarter-on-quarter, improving the CASA ratio to 44.1% and contributing to a 10 basis point decline in the cost of funds.
Analyst’s View
According to TA SECURITIES, the outlook remains positive despite the prevailing challenges. The investment bank maintains a BUY recommendation, with a target price (TP) set at RM0.25, representing a potential upside of 25.0% from the last traded price of RM0.20. This positive view is underpinned by the institution’s solid earnings performance and strategic initiatives to manage costs and enhance shareholder value.
