HLBank Research Highlights

CIMB Group - Cautiously Optimistic

Publish date: Wed, 19 Jan 2022, 09:21 AM
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This blog publishes research reports from Hong Leong Investment Bank

Management was cautiously optimistic on its outlook and upcoming results is likely to come within expectations, meeting overall FY21 guidance. As such, our forecasts were left unchanged. In 4Q21, we can expect to see steady NIM, better fee and trading performance, along with stronger loans growth on a sequential basis. However, higher QoQ NCC will cap the broad improvement. That said, we prefer underappreciated, laggard, lower beta banking stocks (that have similar recovery growth drivers) like RHB (TP: RM7.00) and Maybank (TP: RM9.40) as both of them present better risk-reward opportunities. Maintain HOLD and GGM TP of RM5.40, based on 0.91x FY22 P/B.

On Monday, CIMB held a pre-closed period conference call. Discussions were around its broad operational trends in 4Q21. We summarize the key-takeaways in this report.

Unchanged 75-85bp NCC guidance. The group’s level take-up rate for loans under Rescheduling and Restructuring (R&R) program in 4Q21 stayed fairly stable vs prior quarter of 21%; CIMB expects this to drop materially in 1Q-2Q22 (trough is 6%, based on previous targeted assistance package). For Financial Management and Resilience Program (URUS), the take-up rate here was <1% of its local retail book; management believes this will pick up towards end January. In 4Q21, net credit cost (NCC) is seen to rise QoQ given higher management provision overlay and macro-economic factor adjustments. That said, FY21 NCC of 75-85bp guidance is intact and CIMB is looking at improvement in FY22 but not yet back to a normalized state.

Decent looking top-line in 4Q21. On a sequential basis, 4Q21 underlying group net interest margin (NIM) was broadly steady as CIMB avoided partaking in local deposit rivalry, albeit offset by the contraction in Indonesia due to excess liquidity from quick deposit built up (will need some time to optimize). Management expects 1x overnight policy rate (OPR) hike in 2H22; a 25bp increase will help to lift net interest income up by RM80-100m and expand NIM by 2-3bp on an annualized basis. Separately, 4Q21 loans growth has accelerated further, thanks to the retail and corporate segments in Malaysia and Indonesia. For non-interest income, we gathered that its QoQ fee and trading performance were better vs 3Q21.

Other findings. We understand the recent flood in Malaysia has immaterial impact to CIMB. Besides, we can expect to see exceptional cost from accelerated depreciation of intangible assets in 2022 (run-rate of RM50-60m/quarter). Also, there may be some restructuring expense charge to optimize business and manpower. In addition, CIMB reiterated it is difficult to write off unproductive goodwill for Southern Bank and Niaga given recent good performance and outlook. Hence, the 12-13% ROE target for FY24 could be at risk since it incorporates the cancellation of these items.

Forecast. Unchanged since there were no material updates from the briefing. Also, underlying operational trends in 4Q21 are performing according to expectations. CIMB aims to release its results on 28th February while Niaga falls on 21st February.

Retain HOLD and GGM-TP of RM5.40, based on 0.91x FY22 P/B with assumptions of 8.8% ROE, 9.4% COE, and 3.0% LTG. This is largely in line to its 5-year and sector mean of 0.90-0.92x; we feel the valuation is warranted given its ROE output is similar to pre-pandemic level and industry average. Since CIMB’s share price has performed strongly over the past 1 year, we prefer to instead buy into underappreciated, laggard, lower beta banking stocks (which have comparable recovery growth drivers) like RHB (TP: RM7.00) and Maybank (TP: RM9.40) as both of them present better risk-reward opportunities.


Source: Hong Leong Investment Bank Research - 19 Jan 2022

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