Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value of RM5.60/share based on FY22 ROE of 9.3%, leading to a P/BV of 0.9x. We make no changes to our earnings estimates for now.

• Management Held a Virtual Meeting Yesterday to Provide Updates on the Group.

• As at end-March 2021 (1Q21), the group’s loans that were under moratorium and restructuring and rescheduling (R&R) were 13.0% of its total financing. By country, loans under moratorium and R&R for Malaysia, Indonesia, Thailand and Singapore accounted for 14.0%, 13.0%, 16.0% and 5.0% respectively of the countries’ total loans.

• 1Q21 saw 11.0% of Malaysia’s consumer loans under moratorium and R&R. We understand that as at end-May 2021, the percentage has improved to 6.0%. Subsequently, the scope of borrowers eligible for the 3- month moratorium or 50.0% reduction in monthly instalment for 6 months was expanded and the changes were announced under the Permekasa+ aid package. As of end-June 2021, the percentage of Malaysia consumer loans under moratorium & R&R rose to a high single digit.

• On the latest 6 month-moratorium (opt-in) which commenced on 7 July 2021, the impact is still too early to be assessed, particularly on the mod loss in 3Q21. On a comforting note, management has alluded to a lower mod loss in 3Q21 compared to the automatic blanket moratorium last year (Apr to Sept 2020). The loan moratorium this round allows interest to be accrued and charged for all loans and financing (including fixed rate HP and personal loans). This compares to 2020’s moratorium where the accrual of interest was waived for fixed HP and personal loans.

• As interest will be charged on the latest moratorium, it is expected that only borrowers requiring the repayment assistance will be taking it up. The take-up rate is expected to be lower than that of the 2020 moratorium which saw 85.0% and 66.0% of Malaysia consumer loans and total Malaysia loans respectively opting for moratorium & R&R. Management expects the percentage of the group’s loans under moratorium and R&R (taking into consideration the latest 6-month moratorium) to be still below 20.0% of its total loans.

• We gather that Niaga’s (Indonesian subsidiary of CIMB) top line was decent in 2Q21. Asset quality of Niaga was stable QoQ without the impact of any material provisions. Management has guided for Niaga’s credit cost in FY21 to come in at the higher end of the 240–260bps range.

• Asset Quality for the Group Overall in 2Q21 Has Been Stable.

• On provisions, 2Q21 is unlikely to see significant provisions for loans related to Covid-19-impacted sectors. Recall in 1Q21, the group has booked in circa RM200mil provisions on a Malaysia leisure-related industry loan account. 2Q21 is likely to some top-ups in provision buffers through the adjustments in macro-economic factors (MEFs). Nonetheless, the top-ups in provisions are unlikely to be as large as in 2020. Management is comfortable with provisions buffers that the group has already built up thus far to weather the challenges from lockdowns implemented against Covid-19 pandemic. From last year until 1Q21, based on our tracking, the group has built up provision buffers through adjustments in MEFs and overlays cumulating to RM1.5bil.

• In 4Q20, the group set aside RM395mil provisions for debt securities. We understand that the group is comfortable with the provisions already raised for the bonds. It is unlikely to see further provisions ahead for its bond portfolio.

• Net interest income (NII) is likely to expand QoQ in 2Q21 through loan expansion from large drawdowns while interest margins are looking better across key markets (Malaysia, Indonesia and Singapore). Meanwhile, on non-interest income (NOII), the strong fees and commission income for wealth management and unit trust seen in Jan and Feb 2021 have normalised in 2Q21. We gather that trading income was slightly lower QoQ in 2Q21. Overall, total income in 2Q21 is expected to be slightly lower vs. 1Q21.

• The group is scheduled to announce its 2Q21 results on 27 August. Meanwhile, CIMB Thai and Niaga’s results will be announced on 21 July and 30 July respectively.

Source: AmInvest Research - 16 Jul 2021