Investment Highlights

• We maintain our BUY recommendation on CIMB Group Holdings (CIMB) with unchanged fair value of RM6.20/share based on FY22 ROE of 9.8%, leading to a P/BV of 1.0x. Foreign shareholdings of the stock has risen to 24.7% in Dec 2021 vs. a low of 20.3% in May 2021.

• We tweak our FY22 earnings by -0.7% after fine-tuning our NIM assumptions.

• CIMB provided updates on the group through a virtual meeting on Monday.

• The loan repayment assistance programme (URUS) is opened for applications from 15 Nov 2021 to 31 Jan 2022. We understand that applications for URUS have risen since Nov 2021. However, the total amount of loans where borrowers have applied for URUS on an absolute value basis has so far been insignificant (below 1.0% of Malaysia’s total consumer loans).

• Management alluded to a potential pick-up in applications for URUS towards the end of the deadline (31 Jan 2022). Nevertheless, we do not anticipate a sharp rise in applications for URUS. This is due to the stricter qualifying criteria on borrowers. Borrowers’ CCRIS records will show that their loans are under URUS should they opt for the repayment assistance programme.

• Conservative provisions have already been set aside via top-ups of management overlays in FY20 and FY21. Hence, no significant increase in management overlays is expected from URUS. The group now has better visibility on the risk segments of its loan book.

• On the financial assistance granted to borrowers impacted by the recent floods, we gather that the amount has been small and immaterial. The temporary financial repayment relief is no different from the previous years’ assistance to borrowers of similar catastrophic event.

• 4Q21 is likely to see a higher credit cost than 3Q21’s 62bps. This is due to adjustments to macroeconomic factors (MEFs) and additional overlays in some countries. The group will be taking conservative adjustment in provisions for a borrower in Malaysia and Indonesia as well as for commercial loans in Thailand. Nevertheless, we expect the group’s FY21 credit cost to come in within the guided 80–90bps. 
  On the maturity of its financial assistance programme, we understand that there will be some loan moratorium that will expire by 1Q22. A substantially higher amount of loans under moratorium is seen to be expiring in 2Q22.
• We understand that the group and Malaysia’s loans that are under the repayment assistance programme have remained stable at 21.0% and 27.0% respectively.
• 4Q21 will see a pick-up in loan growth with expansion in consumer and corporate loans in Malaysia and Indonesia. In the near term, loans in Thailand and Indonesia are anticipated to improve in tandem with the respective countries’ economic recovery. However, loan growth for these 2 markets will still be below the industry rate in 1H22 due to the recalibration of financing portfolio.

• On intangible assets, FY22 will continue to see the accelerated amortisation of intangible assets of RM50–60mil per quarter. Recall, in 3Q21, the group reported an impairment in goodwill of RM1.2bil in Thailand. Management alluded to no further impairments of goodwill in FY22. 1H22 is likely to see some restructuring expenses related to the group’s optimisation plans.

• Management hinted of 25bps rate hike for Malaysia, Indonesia and Thailand in 2H22. Typically, a 25bps OPR rate hike will translate into NIM expansion by 2bps and additional RM80–100mil in interest income for the full FY. In 4Q21, the group’s NIM, excluding any mod loss, is likely to be stable QoQ. NIM in Malaysia has been stable but was offset by lower interest margins in Singapore and Indonesia. For FY22, management has guided for stable to marginally negative NIM (Malaysia: stable to marginally drop in NIM; Indonesia and Singapore: decline in interest margins). Singapore’s NIM will be impacted by higher funding cost due to a more aggressive competition for deposits. Over in Indonesia, Niaga’s interest margin will be moderately impacted by higher cost of funds with the excess liquidity. Niaga’s loan are unlikely to grow in line or above the industry in the near term due to the reshaping of financing portfolio which is still in progress.

• Non-interest income (NOII) is likely to be higher in 4Q21 vs. 3Q21 contributed by an improvement in fees and trading income.

• The group is scheduled to release its 4Q21 results on 28 Feb 2022 while Niaga’s results are targeted to be announced on 21 Feb 2022.

• We expect the group’s reported net profit in 4Q21 to be higher than 3Q21. This is due to the non-repeat of a lumpy impairment of goodwill in 3Q21 despite higher credit cost in 4Q21.

Source: AmInvest Research - 19 Jan 2022