The Group’s share price has tumbled in the days post-reporting of its 4QFY21 results, exacerbated by the global market rout amid the intensifying Russian Ukrainian conflict. While there are pockets of concerns, with particular regard to its asset quality and the possibility of further one-off charges, we reckon this should be adequately mitigated by its provisioning overlays. We continue to remain optimistic over CIMB’s longer-term prospects, underpinned by its F23+ initiatives and see the recent sell-down in its shares as overdone. We upgrade our call on CIMB to Outperform with an unchanged target price of RM6.00.

• Positives. Pursuant to its F23+ strategy (unveiled in October 2020) in which the consumer and SME segment were highlighted as key growth drivers going forward, the Group has made some headway in the time since, underpinned by targeted loans growth (Table 1) and reflected by strong income growth (Table 2) in the said segments.
  While strong consumer loans growth have been seen in Malaysia, Indonesia and Singapore, this has been partially offset by weaker numbers in Thailand though not an immediate point of concern considering the latter’s economic state but which is set to recover. The commercial business in Malaysia has been driven by its business banking segment as the SME segment remains a work-in-progress. Loans growth momentum for the Indonesian SME segment is picking up however. Indonesia’s Commercial business is showing improved risk-adjusted return on capital and loan loss coverage meanwhile.

• Negatives. Total provisions have remained undesirably high, despite FY21 seeing a 53.6% YoY drop. What has likely caught the eye is an RM281m provision relating to the double-crediting of customers which has called to question the reliability and integrity of its information technology systems, and raised the possibility of further one-off charges. Be that as it may, the ~RM6bn drop in market capitalization in the immediate aftermath of the 4QFY21 result reporting is vastly overdone, we reckon. Granted, the Group has seen a slightly worrisome increase in 4QFY21 provisions due to additional overlays and top-ups for legacy accounts (due to specific and relatively large exposures) and other receivables. We believe the Group has adequate covering from its cumulative macro-provisions and overlays however (Table 3). Portfolio at risk (Table 4) is manageable. 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 - 9 Mar 2022