Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with a revised fair value of RM5.80/share (previously: RM5.60/share) based on higher FY22 ROE of 9.5% (previously: 9.3%), leading to P/BV of 0.9x. Valuation of the stock remains undemanding at 0.8x FY22 P/BV. It remains one of our top picks for the sector. It is also one of the banking sector’s stocks with higher liquidity.

• We raise our FY21/22/23 net profit by 4.7%/2.7%/2.4% to reflect lower CI ratio assumptions.

• CIMB posted subdued core earnings of RM1.29bil (stripping out transformation cost of RM17mil and intangible asset (IA) write-off and accelerated amortization of RM241mil) in 2Q21. This was contributed by lower underlying operating expenses (opex) and provisions offset by softer non-interest income (NOII). Wealth management and trading income slowed down in 2Q21 after a strong showing in 1Q21.

• 6M21 normalised net profit grew 162.4% YoY to RM2.62bil contributed by higher total income and lower provisions partially offset by marginally higher BAU opex.

• Earnings were above expectations, accounting for 57.5% and 64.1% of our and consensus estimates respectively. The variance to our expectation was largely due to lowerthan-expected underlying opex.

• The group's gross loans growth remained subdued at - 0.2% YoY with expansion of loans in Malaysia offset by a contraction of loans in Indonesia and Thailand (downsizing of commercial loans).

• In 2Q21, the group’s NIM improved by 4bps QoQ to 2.56% attributed to stronger interest margins in Malaysia, Singapore and Thailand. Meanwhile, in Indonesia, NIM contracted QoQ due to pressure on asset yields.

• Underlying opex for 6M21 was flat at +1.2% YoY contributed by higher personnel, IT, admin and general expenses. The group is looking at a cost reduction of RM300–RM500mil over two years (FY21 to FY22). Thus far, the group has identified RM335mil in cost savings (RM30mil: Thailand optimisation, RM45mil: Singapore optimisation, RM200mil: deconsolidation of TNGD and savings of RM60mil from IA write-offs and accelerated amortisation). Management alluded to a potential writeoff of a portion of goodwill in 3Q21.

• For 6M21, provisions on loans were lower at RM1.37bil (-43.9% YoY). Credit cost (based on loans) of 0.74% for 6M21 were within guidance of 0.80-0.90% for FY21. CIMB’s overall GIL ratio was stable at 3.44%.

• An interim dividend of 10.44 sen/share (payout: 40.0%) has been proposed.

Source: AmInvest Research - 1 Sept 2021