Investment Highlights

• We maintain BUY call on CIMB Group Holdings (CIMB) with a revised fair value of RM6.20/share (previously: RM5.80/share) based on higher FY22 ROE of 9.8%, leading to P/BV of 1.0x. The valuation of the stock remains undemanding trading at 0.8x FY22 P/BV.

• We raise our FY21/22 net profit by 8.7%/2.6% to reflect lower credit cost and CI ratio assumptions.

• CIMB posted subdued core earnings of RM1.3bil, stripping out modification losses related to Pemulih and the RM1.2bil goodwill written off for Thailand in 3Q21. The impairment of Thailand goodwill will provide an uplift to FY22’s ROE by 20bps. Wealth management and trading income was softer in 3Q21.

• 9M21 normalised net profit grew 250.8% YoY to RM3.93bil, contributed by higher total income and lower provisions partially offset by marginally higher BAU opex. Earnings were above expectations, accounting for 82.5% and 87.2% of ours and consensus estimates respectively. The variance to our expectation was largely due to lower- than-expected opex and provisions.

• The group's gross loans grew at faster rate of 0.9% QoQ or 1.6% YoY. Growth of consumer loans was partially offset by a contraction in commercial and wholesale banking loans.

• 3Q21 underlying NIM slipped 2bps QoQ to 2.46%.

• CIMB’s underlying opex for 9M21 was flat at +1.0% YoY The group is looking at a cost reduction of RM300– RM500mil over two years (FY21 to FY22). Thus far, the group has identified RM380mil in cost savings (RM30mil: Thailand optimisation, RM45mil: Singapore optimisation, RM200mil: deconsolidation of TNGD, savings of RM60mil from IA write-offs and accelerated amortisation and savings of RM50mil from cost optimisation in Indonesia). CI ratio improved to 47.7% for 9M21.

• For 9M21, credit cost (based on loans) of 0.68% for 6M21 was within the guidance of 0.80–0.90% for FY21. CIMB’s overall GIL ratio declined at 3.38%.

• Our net profit for FY22 has been lowered by 9.2% to account for additional taxes from the prosperity tax of RM540mil. As this is a one-off additional tax, our core net profit for FY22 of RM5.9bil is unchanged.

Source: AmInvest Research - 1 Dec 2021