The Group reported a core net profit of RM854.5m (+>100% YoY and QoQ), contributing to a cumulative FY21 core net profit of RM4.61bn (+286.2% YoY) which is within our and consensus expectations at 102% and 103% of full-year estimates respectively. YoY improvements were on account of better operating margins, healthier cost controls and lower loan loss charges. We adjust FY22/FYY23 estimates higher by 3.0% on average as we make further adjustments on account of the above. Near-term asset quality concerns notwithstanding, we continue to remain optimistic over CIMB’s longer-term prospects underpinned by its F23+ initiatives and opine that this should be adequately mitigated by its provisioning overlays. We retain our Neutral call given limited upside to our raised target price of RM6.00 (RM5.50 previously).

• Operating income for FY21 (on a business as usual basis) is 8.2% higher YoY to RM18.37bn, with strong net interest income growth (+11.5% YoY) underpinned by margin expansions and loans growth mitigating the 1.1% YoY decline in non-interest income contribution owing to drops in trading and foreign exchange income.

• Net interest margin (NIM) improved a notable 18bps YoY to 2.45% owing to improved funding costs, though margin pressures are now expected in the coming financial year, notably from Indonesia and Singapore.

• Loans growth (+3.3% YoY, +1.5% QoQ) momentum is starting to pick up though management indicated that it will continue to remain cautious as it focuses 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. FY22 loans growth target is between 5% and 6%.

• Asset quality. Total provisions for FY21 was lower by 53.6% YoY due to reduced overlays and lower non-retail provisions, though there was also a slightly worrisome increase in 4QFY21 provisions due to additional overlays and top-up for legacy accounts (due to specific and relatively large exposures) and other receivables. Gross impaired loans remains steady at 3.5% (FY20: 3.6%), with loan loss charge at a much-improved 73bps (FY20: 151bps). Management has guided for a loan loss charge of 60bps-70bps for FY22 given ongoing uncertainties on the macro front and its conservative view on non-retail legacy accounts.

Source: PublicInvest Research - 1 Mar 2022