CIMB: Strong Earnings and Capital Return Strategy Drive Positive Outlook
| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading investment bank has reaffirmed its “BUY” recommendation for a prominent financial group, citing robust financial performance, effective cost management, and an attractive capital return strategy. The group’s earnings for the first nine months of FY25 met expectations, showcasing resilience amid a dynamic economic environment.
Performance Review
For the 9-month period ending FY25, the group recorded a net profit of RM5.94 billion, reflecting a slight year-on-year increase of 0.2%, with a healthy return on equity (ROE) of 11.3%. The third quarter of FY25 demonstrated notable strength, with net profit rising 10% quarter-on-quarter. This improvement was largely driven by strong non-interest income (NOII) and lower provisions. Operational efficiency remained a key strength, as overhead expenses were well-managed, maintaining a cost-to-income ratio of 46.5%.
However, the net interest income (NII) experienced a 0.9% year-on-year decline, primarily due to net interest margin (NIM) compression, which saw NIM fall 7 basis points quarter-on-quarter to 2.08%. Loan growth improved to 2.6% year-on-year (3.3% on an FX-adjusted basis) from a slower 1.0% in the prior quarter, though domestic growth continued to lag industry levels. The group also announced a special dividend of 7 sen, part of its strategy to return up to RM2 billion in capital to shareholders by 2027.
Asset Quality and Future Outlook
Asset quality saw positive developments, with the gross impaired loan (GIL) ratio improving to 1.91% in 3QFY25 from 2.15% in 2QFY25. Net credit cost for 3QFY25 stood at 33 basis points, aligning with the FY25 guidance of 25-35 basis points. Loan loss coverage remained robust at 102.8%, rising to 125.2% when including regulatory reserves, comfortably above the industry average of 89%.
Looking forward, the investment bank anticipates a recovery in NIM during 4QFY25, supported by ongoing liability management and repricing efforts. The planned capital return initiative is projected to enhance capital efficiency and boost ROE. Consequently, dividend estimates for FY25F-FY27F have been raised by 9.2% to 17.5%, despite a slight trimming of shareholders’ equity projections to account for the capital return.
Recommendation
Given these factors, the investment bank has reiterated its “BUY” recommendation. It raised its target price to RM8.65 from a previous RM8.11, factoring in the potential for substantial capital returns and incorporating a 3% ESG premium.
