The Group reported a headline net loss of RM100.6m in 3QFY21, though this is marred by a goodwill impairment of RM1.22bnfor its Thai business. Net effect to FY21 bottomline is mitigated by the RM1.16bn gain recognized from the de consolidation of TNG Digital in 1QFY21. Excluding this impairment, core net profit of RM1.14bn (+>100% YoY, -17.4% QoQ) is sequentially lower due to net modification losses and lower trading income. Cumulative 9MFY21 core net profit of RM3.76bn (+>100.0% YoY) is ahead of our and consensus expectations at 91% and 83% of full-year estimates respectively however, the variance due to lower than-anticipated loan loss charges. We adjust FY21-FY23 estimates higher by 7.6% on average as we make further adjustments to credit cost assumptions, though FY22 will be weighed marginally by Cukai Makmur. We remain optimistic over CIMB’s longer-term prospects underpinned by its F23+ initiatives, reflected by improvements in its core operational numbers. We retain our Neutral call given limited upside to our raised target price of RM5.50 (RM5.10 previously) however.

• Operating income for 9MFY21 is 11.7% higher YoY at to RM13.77bn, with net interest income growth (+12.9% YoY) strong despite net modification losses in 3QFY21. Non-interest income was 8.2% higher YoY even as fee and trading income weakened in 3QFY21. YoY growth is supported by particularly robust Treasury and wealth management income recorded in 1QFY21.

• Net interest margin (NIM) slipped 11bps QoQ to 2.40% due to net modification losses. “Business as usual” NIM would have compressed only 2bps to 2.46% (from 2.48%), reflective of its healthy funding profile. CASA ratio remains steady at 41.5% (2QFY21: 41.6%).

• Loans growth (+1.6% YoY, +0.9% QoQ) remains tepid, though a conscious decision by management to focus only on capital-accretive segments in line with its F23+ initiatives. Growth areas will continue to be its Group consumer book, Malaysian Commercial, and Indonesian Consumer and SME segments.

• Asset quality. Credit cost for 3QFY21 is lower at 0.62% in the absence of significantly large impairment, though management undertook a further RM407m in overlays, largely attributed to the Malaysian consumer and Commercial segments. Current allowance coverage is 105.1% (2QFY22: 102.2%) as gross impaired loans remained steady at 3.4% (2QFY21: 3.4%). A sizeable portion of its Malaysian loans book (27%) remains under moratorium and restructuring, with particular strain in the commercial segment. Incidentally, similar stresses are seen in the Thai and Indonesian books (Table 2).

Source: PublicInvest Research - 1 Dec 2021