Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with a revised fair value at RM5.50/share based on higher FY22 ROE of 9.0% (previously from RM5.20/share based on 7.0%), leading to a P/BV of 0.9x. We adjust our FY21/22 net profit by +26.9%/+25.4% to reflect higher interest margin assumptions and lower credit cost.

• With already sizeable provisions taken in FY20, provisions in FY21 though elevated, will be lower comparatively. Also, we do not see a repeat of the high provisions for debt securities and derivatives exposure in FY20. Valuation of the stock remains undemanding and we see recovery in the group’s earning from improvement in economic growth as it is one of the systematically important banks.

• CIMB reported an improved 4Q20 core net profit of RM155mil (+26.7% QoQ) with higher NOII and NIM while provisions stayed elevated.

• 12M20 core net profit of RM1.28bil (-73.3% YoY) was below expectations, accounting for 78.6% and 82.6% of our and consensus estimates respectively. This was mainly due to higher total provisions. Underlying ROE for 12M20 was 2.3%.

• The group's gross loans growth was flat at -1.60% YoY due to a slowdown in international markets loans with the intentional derisking of loan book. Malaysia loans grew 2.9% YoY below the industry’s growth of 3.4% YoY.

• Underlying NIM fell 12bps YoY to 2.34% for 12M20, on better interest margins in Singapore from management funding cost (optimising FDs and savings deposits) and marginally improved interest margin in Malaysia.

• Underlying Opex for 12M20 declined by 5.5% YoY excluding Malaysia’s FMC and Indonesia MSS expenses of RM366mil. This was attributed to tighter cost control. The group met its cost reduction target of RM500mil in FY20. CI ratio for 12M20 improved to 51.9% excluding modification loss.

• 12M20 credit cost (based on loans) was 1.46%, within the guidance of 1.40–1.50% for FY20. Provisions on commitment and contingencies (undrawn loans) and debt securities rose YoY. Nevertheless, moving into FY21, these provisions are unlikely to trend higher.

• CIMB’s overall GIL ratio rose to 3.56% from 3.38% in the preceding quarter. Against the preceding quarter, the percentage of loans under targeted assistance programme (TAP) and R&R has declined for Malaysia and Thailand to 12% and 24% respectively. Meanwhile, it was stable in Singapore and increased marginally in Indonesia to 18% from 16% in 3Q20.

• The group proposed a final dividend of 4.81 sen/share (payout: 40%) for FY20 which was within its guided payout of 40–60%.

Source: AmInvest Research - 1 Mar 2021