CIMB Group (CIMB) reported a slightly weaker net profit of RM1.33bn (+55.1% YoY, -5.8% QoQ) on a sequential basis, though contributing to a cumulative FY22 net profit of RM5.44bn (+26.6% YoY) which met both our and consensus estimates at 101% and 102% of full-year forecasts respectively. Ending on a high, CIMB exceeded all targets set, most notably on ROE, cost-income ratio (lowest recorded ratio of 46.5%) and credit costs. The Group continues to reap the rewards of its F23+ initiatives, and remains on track to see stronger financial years ahead. We remain optimistic over CIMB’s longer-term prospects, and affirm our Outperform call with an unchanged target price of RM6.70.
- Operating income grew +8.0% YoY to RM19.84bn, underpinned by net interest income growth (+8.6% YoY), on account of healthy loans growth and improved margins. Non-interest income (NoIII) growth (+6.0%) was supported by improvements in fee income contributions and non-performing loan recoveries meanwhile. By business segment, consumer banking (+8.3% YoY) was a key driver, with traction seen in all its core markets.
- Net interest margin (NIM) inched 2bps higher QoQ (+6bps YoY) benefitting from the multiple policy rate hikes both in Malaysia and Indonesia. Deposit competition is expected to remain intense in the coming financial year, posing a notable threat to margins, which it intends to mitigate through the strengthening of its CASA rand deposit franchises. Management anticipates margin compressions in the range of 5bps to 10bps in 2023.
- Loans growth (+7.7% YoY, +0.3% QoQ) has been encouraging, with traction seen in key markets – Malaysia (+6.0% YoY), Indonesia (+8.3% YoY) and Singapore (+6.5% YoY). By business segment, consumer banking (+7.2% YoY) and wholesale banking (+9.3% YoY) are key drivers, the former in the areas of mortgages (+8.1% YoY) and hire purchase (+9.0% YoY), and the latter in the area of working capital loans (+15.5% YoY). Management anticipates loans growth of between 5% and 6% for 2023.
- Asset quality. Cumulative FY22 provisions are lower by 25.3% YoY due to lower macro provisions (MEF) and overlays (-59.7% YoY to RM316m) and a decline in COVID-19 related provisions (-81.9% YoY to RM115m). Management has undertaken a provisioning top-up amounting to RM200m, with cumulative MEF and overlays now amounting to RM2.9bn which should be sufficient to mitigate any significant deterioration in asset quality. Loan loss charge is 70bps (3QFY22: 48bps) this current quarter, and 51bps for the year. Management has guided for a loan loss charge of 45bps-55bps for FY23. Gross impaired loans is a slightly better 3.3% (3QFY22: 3.5%), though allowance coverage is weaker at 93.1% (3QFY22: 99.9%).
Source: PublicInvest Research - 1 Mar 2023