CIMB: Steady Earnings and Strategic Loan Optimisation Drive ‘Buy’ Recommendation

MBSB Research has maintained its “BUY” recommendation for CIMB Group Holdings Berhad, with an unchanged target price of RM8.22. The investment bank noted a decent set of earnings for the second quarter and first half of fiscal year 2025 (2QFY25/6MFY25), largely aligning with internal and street forecasts. Despite a slight year-on-year decline in core net profit for the first half, the bank’s strategic initiatives in loan optimisation and a robust wholesale loan pipeline are expected to underpin future performance.

Performance Review

For the first six months of FY25, CIMB Group reported a core net profit (NP) of RM3,862 million, which was within both MBSB Research’s and street forecasts, representing 50% and 48% of full-year estimates, respectively. This figure, however, marked a 1% year-on-year decline. The 2QFY25 core net profit stood at RM1,889 million, a 4% quarter-on-quarter decrease. This decline in 6MFY25 was attributed to a weaker Non-Interest Income (NOII) result, partially offset by lower provisions. Conversely, the 2QFY25 performance saw better NOII being counterbalanced by higher provisions and tax expenses. The Group also announced dividends per share (DPS) of 19.8 sen, translating to a 55% payout for 6MFY25.

Strategic Initiatives and Future Outlook

Management’s tone was noted as neutral, with significant developments anticipated in regional segments, particularly with the ongoing restructuring in CIMB Thai and the dynamic backdrop in Niaga. MBSB Research highlights the possibility for special dividends if excess capital persists, adding to CIMB’s already strong dividend yields. CIMB Niaga is expected to outperform its peers in coming quarters, primarily due to its proactive slowing of loan growth in sensitive segments. Meanwhile, CIMB Thai is undergoing a restructuring, with a new CEO focusing on specialising in various loan segments, aiming for growth in the wholesale segment while optimising the consumer portfolio.

The bank’s NIM (Net Interest Margin) optimisation strategy is deemed unique, involving the replacement of pricier institutional deposits with cheaper retail CASA (Current Account Savings Account) and leveraging a solid pipeline of wholesale loans, particularly in Singapore and Malaysia, to bolster its loan-to-deposit ratios. Despite reporting only 0.5% year-to-date loan growth on a constant currency basis, CIMB has maintained its 5-7% loan growth guidance, expressing strong confidence in its corporate loan portfolio.

Challenges and Risks

While the outlook remains largely positive, the report acknowledges several challenges. The group experienced adverse forex impacts from regional segments in 2QFY25, notably affecting Niaga’s portfolio. Future NIM compression is also identified as a potential headwind, although multiple offsets are expected. Key downside risks include a worsening Indonesian economic environment, persistent drag from the Thai portfolio, and a steeper-than-expected NIM compression.

Conclusion

MBSB Research’s unchanged earnings forecasts and “BUY” recommendation underscore its confidence in CIMB Group’s ability to navigate current challenges through strategic management and robust business segments. The target price of RM8.22 is based on an unchanged FY26F P/BV of 1.17x, reflecting altered earnings prospects and ROE-based valuations, suggesting a total expected return of 16.0% for investors.