The Group reported a robust RM2.46bn net profit for 1QFY21, though it includes an RM1.16bn revaluation gain from deconsolidation of Touch ‘n Go Digital. Excluding this, core net profit of RM1.30bn (+156.3% YoY, +505.5% QoQ) is still ahead of our and consensus expectations at 39% and 34% of full-year estimates respectively, the discrepancy coming better-than-expected non-interest income. We leave estimates unchanged however given the expectation of some of these numbers normalizing in subsequent quarters. While recent re-imposition of stricter movement restrictions and may dampen sentiment and lead to an uneven recovery momentum, we remain optimistic over CIMB’s longer-term prospects, underpinned by its F23+ initiatives. We retain our Neutral call however given limited upside to our target price of RM4.50.

• Operating income for 1QFY21 is higher by 15.9% YoY, aided by strong income growth in treasury and wealth management. Net interest income (+8.0% YoY) was also helped by margin expansions despite weakness in credit growth.

• Loans outstanding was a marginal 0.7% higher YoY as the Group continued to prioritize asset quality management and in assisting customers overcome current challenges. Future growth will be driven by the Malaysian commercial segment, Indonesian and Singaporean SMEs, as well as the overall consumer business.

• Net interest margin (NIM) improved 15bps sequentially to 2.52%, driven in part by ongoing improvements in its funding profile. CASA ratio is at 42.3% (Dec 2020: 41.3%). Management expects NIM to improve by between 10bps and 20bps (to ~2.45%) this financial year.

• Asset quality is on a gradually improving trajectory. Credit cost for 1QFY21 is down to 0.78% (Figure 2) due to recoveries of legacy accounts, and the absence of large impairments. This is despite RM103m in additional overlays undertaken during the quarter, attributed to its Indonesian consumer business. The Group has also taken an additional RM182m charge for COVID-19 based provisions for leisure-related accounts. Current allowance coverage is 101.9% (4QFY20: 91.6%) while gross impaired loans remains steady at 3.4% (4QFY20: 3.6%).
  
  On the Group’s exposure to loans under moratorium and restructuring, some level of weakness is being seen in its Malaysian commercial and corporate segments (Table 2), though Indonesia is seeing recovery in its consumer business.

Source: PublicInvest Research - 1 Jun 2021