CIMB Niaga reported another sequentially weaker quarter, with 4QFY21 net profit of Rp992m (-6,7% QoQ) weighed by lower net interest income (-4.5% QoQ), higher operating expenses (+1.4% QoQ) and a further uptick in loan loss provisions (+12.5% QoQ). Cumulative 12MFY21 net profit is a healthy Rp4.22tln (+109.4% YoY) however, with a notable lifts from non-interest income (+15.2% YoY) and lower loan loss provisions (-22.8% YoY). Operating margins were maintained as a result of strong CASA (current/savings account) growth despite tepid credit expansion. In the near to medium-term, management will continue to focus on improving asset quality and optimizing its Risk-Adjusted Return on Capital, with the consumer and SME segments key business drivers. We remain optimistic over CIMB’s longer-term prospects, reflected by ongoing improvements in its core operational numbers. We retain our Neutral call however, with the share price having exceeded our unchanged target price of RM5.50.

• Operating income for FY21 was higher by 7.4% YoY, aided by a notable drop in its funding cost (interest expense, -29.9% YoY) and strong contributions from non-interest income (+15.2% YoY). While a large part was contributed by trading-related income (+16.3% YoY) and loan recoveries (+28.5% YoY), management expects sustained business recoveries to drive growth in the coming financial year.

• Net interest margin (NIM) saw a notable 37bps QoQ drop to 4.47% in 4QFY21 (3QFY21: 4.84%) due to i) a significant build-up in year-end liquidity and 2) a reversal in accrued interest as certain loans were classified non performing. Strong CASA growth (CASA ratio: 61.3%) helped protect margins for the year however, with FY21 NIM at 4.86% (2020: 4.88%). Management expects a 20bps contraction in FY22 (to 4.66%).

• Loans outstanding expanded 2.6% QoQ and 3.9% YoY, driven by a turnaround in its corporate and consumer portfolios. Moving forward, the enterprise banking and consumer businesses will continue to be key drivers, the latter underpinned by the mortgage and auto segments. Management has guided for loans growth of between 4% and 6% in 2022.

• Asset quality remains steady. Loan loss provisions saw a 12.6% QoQ uptick due to recent COVID-19 related challenges, though cumulative 12MFY21 provision is 22.8% lower YoY due to better macro conditions amid tighter risk management controls. Credit cost of 2.4% for FY21 is at the lower-end of management guidance, with 2022 credit cost expected at between 2.1% and 2.3%.

Source: PublicInvest Research - 22 Feb 2022