Investment Highlights

• We maintain HOLD on CIMB Group Holdings (CIMB) with a revised fair value of RM3.70/share from RM3.10/share based on an FY21 ROE of 5.8% (from 4.9%), leading to a P/BV of 0.6x. We adjust our FY20/21 net profit by - 18.9%/+19.1% reflect the changes to recognition of timing in provisions. This revises our credit cost assumptions for FY20/21 to 1.40%0.80% (from 1.20%/1.00%).

• CIMB reported a weaker 3Q20 core net profit of RM122mil (-75.1% QoQ) with higher provisions (management overlays) of RM359mil taken for all the key markets. Also, in 3Q20, the group booked additional provisions of RM250mil in Indonesia for borrowers related to the steel sector and RM200mil for Singapore’s legacy accounts related to the FPSO segment. Earnings were weaker in 3Q20 despite total income coming in stronger with higher NII and NOII from the recovery in trading and FX income.

• 9M20 core net profit of RM1.12bil (-69.5% YoY) was below expectations, accounting for 56.3% and 57.2% of our and consensus estimate respectively. The lower-thanexpected earnings were mainly due to higher provisions. Underlying ROE for 9M20 was a low 2.7%.

• The group's gross loans growth decelerated to 1.6% YoY (2Q20: 3.9% YoY) due to a slowdown in international markets’ loans. Malaysia loans grew 5.8% YoY, outpacing the industry growth of 4.4% YoY.

• Underlying NIM fell 11bps QoQ to 2.32% in 3Q20. On QoQ basis, Malaysia NIM was flat with only a 25bps cut in OPR in 3Q20 vs. 50bps of rate cuts in 2Q20. Meanwhile, in Indonesia, interest margin in 3Q20 was compressed due to the adjustments in effective interest rates (EIR) after rate cuts while in Singapore, NIM improved due to the reprising of deposits.

• Underlying opex for 9M20 declined by 5.5% YoY, excluding Malaysia’s FMC and Indonesia MSS expenses of RM349mil. This was attributed to tighter cost control. The group is on track to meet its cost reduction target of RM500mil in FY20. CI ratio for 9M20 improved to 53.3%.

• 3Q20 credit cost remained high at 1.66%. 9M20 credit cost on annualised basis came in at 1.44% above the guidance of 1.20–1.40% for FY20.

• CIMB’s overall GIL ratio declined to 3.38% from 3.61% in the preceding quarter. 9.8% of Malaysia’s loans under the targeted assistance programme (TAP) and R&R. By segment, 9.8% of Malaysia’s consumer loans are under TAP while 16.0% and 10.9% of Malaysia’s commercial and corporate banking loans have been put under R&R.

Source: AmInvest Research - 30 Nov 2020