Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) and revise our fair value to RM5.60/share (previously: RM5.50/share) based on a higher FY22 ROE of 9.3% (previously: 9.0%), leading to a P/BV of 0.9x. We are seeing a stronger improvement in total income. Also, valuation of the stock remains undemanding.

• We raise our FY21/22/23 net profit by 5.1%/4.1%/4.2% to reflect higher NIM assumptions.

• CIMB posted RM1.3bil 1Q21 core earnings after stripping out RM1.5bil revaluation gains from the deconsolidation of Touch ‘n Go Digital (TNGD) and a rise in net modification gain by 155.6% YoY. This was due to higher net interest income (NII) and non-interest income (NOII).

• Earnings were within expectations, accounting for 29.9% of our estimates. However, it beat consensus projection at 34.3% of street numbers.

• The group's gross loans growth remained subdued at 0.7% YoY with an expansion of loans in Malaysia offset by a contraction in Indonesia and Thailand (reduction of commercial loans).

• In 1Q21, the group’s NIM improved by 15bps QoQ to 2.52%, attributed to the optimization of liabilities and CASA growth. On a QoQ basis, the NIM expansion was contributed by the rise of interest margins in Malaysia (+14bps) and Indonesia (+40bps).

• Opex for 1Q21 was flat at +0.9% YoY contributed by higher personnel and IT expenses, partially offset by cost savings from the deconsolidation of TNGD and lower marketing, admin and general expenses. The group is looking at a cost reduction of RM300–RM500mil in FY21 (RM30mil: Thailand optimisation, RM45mil: Singapore optimisation and RM200mil: deconsolidation of TNGD)

• Credit cost for 1Q21 (based on loans) was lower at 0.78% and it was within guidance of 0.80-0.90% for FY21. This was a marked improvement from 4Q20’s credit cost 1.51% which saw elevated loan provisions of RM1.38bil.

• In 1Q21, the group has booked in additional loan provisions of RM103mil as management overlay for Indonesia consumer portfolio. 1Q21 also saw provisions of RM182mil for the impact of Covid-19 on a leisure related industry loan account.

• CIMB’s overall GIL ratio improved to 3.44%. The percentage of loans under moratorium and restructuring and rescheduling (R&R) fell to 13.0% of total loans compared to 15.0% in the preceding quarter. In Malaysia, the percentage of loans under moratorium and R&R increased slightly QoQ to 14.0% due to higher relief assistance for commercial and corporate loans.

Source: AmInvest Research - 1 Jun 2021