Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with a higher fair value (FV) of RM6.70/share from RM6.60/share pegging the stock to FY23 P/BV of 1.0x based on an ROE of 10.2%. No change to our neutral 3-star ESG rating.

• We raise our FY22F/23F/24F earnings by 10%/5%/6% to factor in higher loan growth and lower credit cost assumptions. However, 6MFY22 earnings were within expectations, accounting for 55% of our estimate. It was above consensus projection, making up 61% of street’s.

• 6MFY22 underlying net profit rose by 18% YoY to RM3.1bil. The improved showing was underpinned by higher net interest income (NII) from loan expansion (despite NIMs contracting in Indonesia and Thailand) together with lower opex and loan provisions, partially offset by drop in non-interest income (NOII). NOII fell YoY due to weaker trading and FX income.

• Gross loans grew at a faster pace of 6.8% YoY, supported largely by consumer loan growth. Commercial and wholesale banking loans expanded as well.

• JAW was a positive 1% while underlying opex for 6MFY22 was well contained at +1.7% YoY. CI ratio improved marginally to 46.5% for 6M22.

• 2QFY22 core earnings were flattish at RM1.5bil (-0.8% QoQ) after stripping out exceptional item net of tax and minority interest (MI) of RM44mil, the impact of Cukai Makmur of RM222mil and mod loss.

• In 2QFY22, the group’s NIM rose by 2bps QoQ to 2.47% contributed largely by improved interest margins in Indonesia. By deploying excess liquidity into growing loans, its Indonesian subsidiary, Niaga, chalked up a margin expansion of 17bps QoQ. Total CASA decreased by 2% QoQ in 2QFY22 due to a decline in wholesale banking deposits. As a result, CASA ratio slipped to 42.3%.

• 2QFY22 provisions rose by 59% QoQ due to additional RM132mil of allowances for losses raised as overlays and adjustments of its MEF model. 6MFY22 credit cost of 40bps was lower than the FY22F guidance of 60–70bps. For 6MFY22, provisions for loan losses fell by 46% YoY, driven largely by lower loan impairment allowances. 6MFY22 saw write-backs from a commercial loan in Singapore in 1QFY22, decrease in Covid-19 provisions in Malaysia and BAU allowances for losses on consumer loans.

• An interim dividend of 13 sen/share has been declared (cash: 2.6 sen and electable portion for DRP: 10.4 sen). This represented a payout of 50% in line with our expectation. We continue to like CIMB due to its attractive valuation at 0.8x FY23F PB/V. Asset quality has improved with lower provisions while cost optimisation and recalibration of its commercial banking business in Indonesia and Thailand are showing results with improved performance.

Source: AmInvest Research - 1 Sept 2022