Again, management sounded cautious during yesterday’s briefing but kept its FY20 guidance. Forecasts were unchanged as the underlying operational trends in 3Q20 are performing to expectations. In our opinion, the stock’s risk-reward profile remains balanced despite its undemanding valuations (P/B at -2SD & lower vs GFC’s level) and decade low foreign shareholding level, given shortterm Covid-19 headwind uncertainties. Maintain HOLD and GGM-TP of RM3.30, based on 0.55x FY21 P/B.

Yesterday, CIMB held a pre-closed period conference call. Discussions were around its broad operational trends in 3Q20. Overall, management still sounded cautious but kept its FY20 guidance: (i) 10-15bp NIM slippage, (ii) 120-140bp net credit cost, and (iii) 2.0-4.0% ROE. However, they cautioned that their NIM and FY20-21 NCC targets may have to be revised if OPR is cut again and Covid-19 crisis intensifies further.

Relatively stable NIM. In Malaysia, we gathered 3Q20 NIM was stable due to strong CASA growth while Singapore saw a turnaround from downward deposit repricing. As for Indonesia, NIM was hit by negative revisions from recent rate cuts and asset yield pressure. Overall, sequential NIM in 3Q20 was relatively stable

Better NOII. Management shared 3Q20’s top-line was decent, primarily coming from Malaysia and Singapore while Indonesia was muted; QoQ non-interest income (NOII) broadly picked up momentum, thanks to fee income recovery and robust performance at treasury & markets division.

Elevated NCC. CIMB indicated loan loss provision in 3Q20 remains elevated due to: (i) conservative forward-looking overlays across the board (Malaysia was particularly higher), while (ii) Indonesia and Singapore topped up bad loan allowances for some legacy accounts. Also, the FY20-21 NCC guidance of 150-200bp may be at risk of coming in higher due to worsening Covid-19 crisis at both Malaysia and Indonesia. That said, we have already built in a total NCC assumption of 227bp in our model.

Other findings. We understand 10% of the Malaysian loans book were rescheduled and restructured (R&R) and under the targeted assistance program (so far, it is below the 20-30% guidance); take-up rate for the retail segment was mid-single digit while commercial and corporates were low single digit. Outside of Malaysia, the R&R takeup rate was relatively stable. Besides, the cost savings of RM500m in FY20 will come mainly from natural job attrition, hiring freeze, lower capex spending and marketing expenses. Separately, CIMB is seriously looking to write-off some of its goodwill but it would not be carried out this year.

Forecast. Unchanged since there were no material updates from the briefing. Also, underlying operational trends in 3Q20 are performing according to expectations. CIMB Niaga is aiming to release its results on 6 Nov while the Group is reporting tentatively on 24 Nov.

Retain HOLD and GGM-TP of RM3.30, based on 0.55x FY21 P/B with assumptions of 5.9% ROE, 8.2% COE, and 3.0% LTG. This is beneath both its 5-year average of 0.92x and the sector’s 0.74x; we feel the valuation is fair given its ROE output is 3ppt below its historical and industry mean. While trading at an attractive price point (P/B at -2SD and lower vs GFC’s level) and decade low foreign shareholding level, CIMB’s risk-reward profile is balanced, given short-term Covid-19 headwind uncertainties.

Source: Hong Leong Investment Bank Research - 28 Oct 2020