Investment Highlights

• We retain our HOLD recommendation on CIMB Group Holdings (CIMB) with an unchanged FV of RM3.30/share based on FY21 ROE of 5.5%, leading to a P/BV of 0.5x. Our earnings estimates are unchanged.

• 1Q20 saw the recognition of RM430mil provision set aside for a defaulted oil trader’s loan in Singapore. In 2Q20, the group is likely to record another provision of between RM500-560mil for another oil trader which has defaulted on its loans from CIMB Singapore. Recall, the Edge Markets website reported earlier that CIMB Singapore has an exposure of US$120–130mil to the financially strapped oil trader Hin Leong.

• With additional provisions for Singapore and changes in ECL model from revisions to macroeconomic variables across their operations in 2Q20, 1H20 credit cost on annualised basis will likely exceed the group’s guidance of 100-120bps for FY20. Nevertheless, management is keeping their credit cost guidance of 100-120bps as it is still within reach for the full year of FY20. On a 2 year cumulative basis, management guided for a credit cost of 150-200bps. This implied that credit cost will still be elevated at 80-100bps for FY21 taking into account the higher end of the guidance of 200bps.

• For Malaysia, impaired loans remained stable attributed to the loan moratorium. In Indonesia, pressure on the asset quality for consumer loans seen in 1Q20 has eased in 2Q20 through restructuring and rescheduling (R&R) initiatives. Nevertheless, pressure on NPLs is rising for commercial and corporate loans in Indonesia. Provisions for corporate loans have increased at Niaga’s level. However, this will not impact the group. This is in view that top-up in provisioning for corporate loans for Indonesia had already been taken at group level in 1Q20. Management hinted the group NPL ratio is likely to peak in FY21. In Thailand, there is also a provision for a corporate loan but it will not materially impact the group.

• The percentage of loans under R&R in both Malaysia and Indonesia has risen. Also, increased are R&R initiatives for Singapore while the % of R&R loans in Thailand has remained stable

Source: AmInvest Research - 17 Jul 2020