The 7-fold YoY jump in 4Q21 core net profit came on the back of positive Jaws and lower loan loss provision. Also, loans growth gained traction and GIL ratio improved. However, NIM slipped sequentially. That said, results were in line and hence, our forecasts were unchanged. Since CIMB’s share price has performed strongly over the past 1 year, we prefer underappreciated, laggard, lower beta banking stocks (that have comparable recovery growth drivers) like RHB (TP: RM6.60) 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.

Within expectations. Excluding one-time intangible and fixed assets write off, CIMB Niaga (93%-owned) chalked in 4Q21 core bottom-line of IDR992bn (-7% QoQ, +7-fold YoY), bringing FY21 total to IDR4,236bn (doubled YoY). This was within expectations, making up 96-98% of our and consensus full-year forecasts.

QoQ. The 7% drop in core net profit was no thanks to negative Jaws (total income fell 1%) and higher loan loss allowances (+13%). At the top, we saw net interest margin (NIM) compressed 37bp but this was slightly cushioned by better non-interest income (NOII, +10%); led by stronger forex and derivative gains (+40-fold).

YoY. Core earnings jumped 7-fold given positive Jaws (total income grew 4% on the back of a 21% NOII growth, coming from robust fees, forex and derivative gains) and lower provision for impaired loans (-39%).

YTD. Similar to YoY trend, positive Jaws as a result from stronger total income growth (+7%; loans expanded 4% while NOII spiked up 15%) and lower bad loan allowances (-23%), helped bottom-line to double.

Other key trends. Both loans and deposits growth gained momentum to +3.9% YoY (3Q21: -2.2%) and +16.3% YoY (3Q21: +7.6%) respectively. Sequentially, the loan-to deposit ratio was nudged down 3ppt to 75%. As for asset quality, the gross impaired loans (GIL) ratio improved 26bp QoQ to 6.66%; this was mainly due to the larger loan base.

Outlook. Going forward, NIM was guided to contract 20bp in FY22 given lower asset yield due partially to its plan to focus growing its retail and SME franchises (but stands to benefit from better asset quality). Hence, despite Bank Indonesia potentially raising interest rate in 3Q22, management expects a 25bp hike will have a neutral impact on NIM. As for loans growth, we see continuous gradual recovery in the next 12 months. Separately, loan restructuring efforts will help to limit any drastic deterioration in NPL ratio; Otoritas Jasa Keuangan (a government agency that regulates and supervises the financial services sector) has prolonged the loan restructuring program until Mar- 23 to support troubled borrowers.

Forecast. Unchanged as Niaga’s 4Q21 results were in line (it contributes c.20-25% to group’s PBT); CIMB Group is poised to release its 4Q21 financials on 28 Feb.

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: RM6.60) and Maybank (TP: RM9.40) as both of them present better risk-reward opportunities.

Source: Hong Leong Investment Bank Research - 22 Feb 2022