Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with a revised fair value (FV) of RM6.50/share from RM6.70/share, pegging the stock to an unchanged FY23F P/BV of 1.0x based on a slightly lower ROE of 10.2% (previously: 10.3%). No change to our neutral 3-star ESG rating.

• We fine-tuned our FY23F earnings by -0.1%/+6.3% after adjusting our credit cost and net interest margin (NIM) assumptions.

• 12M22 earnings were within expectations, coming in 2% above our estimate. However, it was above consensus projection, 15% of street’s.

• CIMB’s 12M22 underlying net profit rose by 30.1% YoY to RM6.2bil, supported by stronger NII from loan and interest margin expansion, higher NOII from fee income and NPL recoveries. Also, the improved earnings were driven by lower total loan provisions of 25.3% YoY.

• Gross loan growth moderated to 7.7%YoY in 4Q22 from 9% YoY in 3Q22. This was due to to the muted loan growth from all key business segments in the quarter.

• CIMB reported a lower 4Q22 core earnings of RM1.48bil (- 9.5% QoQ) after stripping out the impact of Cukai Makmur of RM146mil, an exceptional item net of tax and minority interest (MI) of RM6mil and modification loss. 4Q22 saw higher operating expenses (OPEX) due to year-end accruals and higher loan provisions.

• In 4Q22, the group’s NIM rose by 2bps QoQ to 2.57%, contributed largely by improved interest margins in Indonesia and Singapore which offset a compression of margin in Malaysia due to stiffer deposit competition. CASA growth declined by 2.5% QoQ contributed by the slowdown of retail deposits in Malaysia. This led to a lower CASA ratio of 39.9% in 4Q22 vs. 41.7% in 3Q22.

• Underlying opex in 12M22 was well contained with a decline of 0.8% YoY. The CI ratio improved to 46.5% for 12M22 (12M21: 48.6%).

• In 4Q22, loan loss provisions increased by 48% QoQ due to revision of macroeconomic factors (MEFs), overlays in Malaysia and Singapore as well as higher underlying provisions in Indonesia and Malaysia. For 12M22, loan impairment allowances fell by 25.3% YoY due to lower provisions raised through the revision of macroeconomic factors (MEFs), overlays, Covid-19-related provisions in Malaysia while a top up in provisions was made on a legacy steel loan in Indonesia. 12M22 credit cost of 49bps was within the guidance of 50–60bps for FY22.

• An all-cash 2nd interim dividend of 13 sen/share has been declared, bringing the 12M22 total dividends to 26 sen/share (payout: 43.7% based on core EPS).

Source: AmInvest Research - 1 Mar 2023