Investment Highlights

• We maintain our BUY call on CIMB Group Holdings (CIMB) with a revised fair value of RM6.50/share from RM6.20/share after rolling over our valuation to FY23, pegging the stock to P/BV of 1.0x based on ROE of 9.7%.

• We lower our FY22/23 net profit by 5.8%/7.1% to reflect a higher CI ratio and lower NIM assumptions.

• 4Q21 core earnings came in at RM836mil (-36.2% QoQ), after stripping out exceptional item and deferred tax asset on the prosperity tax of RM44mil. The decline in net profit was attributed to higher operating expenses (opex) and loan impairment allowances with further management overlays and top-up in provisions for legacy loan accounts.

• 12M21 normalised net profit grew 273.7% YoY to RM4.76bil, contributed by higher total income and lower provisions partially offset by higher opex.

• Earnings were slightly below expectations, accounting for 91.8% of ours but within consensus estimates at 101.0% of street numbers. The variance to our expectation was largely due to higher-than-expected opex and provisions.

• The group's gross loans grew at a faster rate of 1.5% QoQ or 3.3% YoY. This was supported by growth in consumer, commercial and wholesale banking loans.

• In 4Q21, the group’s underlying NIM slipped 6bps QoQ to 2.40%, contributed by a drop in interest margins with flush liquidity in Indonesia and Thailand and pressure on competition for deposits in Singapore.

• Underlying Opex for 12M21 was well contained at +1.8% YoY. The group has identified a cost take-out of RM410mil out of a cost reduction target of RM300– RM500mil over two years (FY21 to FY22). Thus far, the impact on FY21 was RM195mil with the remaining cost reduction likely to be realised in FY22. CI ratio improved to 48.6% for 12M21.

• For 12M21, credit cost (based on loans) of 0.69% was within guidance of 0.80–0.90% for FY21. CIMB’s overall GIL ratio inched higher to 3.52%.

• It declared a second interim dividend of 12.55 sen/share bringing the total dividends to 23 sen/share (payout: 50.0%), close to our estimate of 26 sen /share for 12M21.

Source: AmInvest Research - 1 Mar 2022