Management’s tone remained cautiously optimistic and kept its FY22 guidance. As such, our forecasts were left unchanged as underlying operational trends in 1Q22 are performing to expectations. In the upcoming quarterly results, we will likely see some NIM slippage, stronger loans growth, and better NOII on a QoQ basis. However, NCC should remain elevated, capping performance. Overall, we are not yet bullish, despite price weakness given CIMB has one of the highest investment % concentration in HFT securities with negative FVOCI. Besides, the recent fiasco surrounding its duplicate credit transactions does not help market sentiment. Maintain HOLD and GGM-TP of RM5.65, based on 0.90x FY23 P/B.

On Monday, CIMB held a pre-closed period conference call. Discussions were around its broad operational trends in 1Q22. We summarize the key-takeaways in this report.

60-70bp FY22 NCC guidance intact. The group’s level take-up rate for loans under Rescheduling and Restructuring (R&R) program has dropped to 9% from 18% in Jan- 21. Scrutinizing further, the R&R for its local retail book is at mid-single digit in March and only <1% of them missed payment. As for some of the troubled corporate clients in O&G and steel segments, management has already baked them into their 60-70bp FY22 NCC guidance, limiting any downside risk. Furthermore, MEV provision top-up is minimal even though the macro climate has turned challenging again, considering that CIMB was prudent in not writing back any when the outlook was slightly brighter, and thus, this could be used as an offset if necessary.

Decent top-line performance expected for 1Q22. On a sequential basis, we expect a slight downtick in 1Q22 group NIM as Indonesia is still seeing some slippage due to excess liquidity from quick deposit built up (management thinks this is the trough and looks to step up on its liquidity optimization efforts from 2Q22 onwards) while locally, discipline deposit price competition was observed. Separately, 1Q22 loans growth has accelerated further QoQ, lifted by Malaysia retail segment alongside the broad pick-up in other operating countries. As for NOII, we are likely to see QoQ improvement from better trading performance but fee showing was muted.

Other findings. As at Dec-21, pre-emptive provisions stood at RM2.2bn where 73% is management overlay and the balance 27% is MEV; we understand that writebacks can only occur at earliest in 4Q22 or 2023. For its bond portfolio, CIMB is comfortable with the level of impairment it has done so far and indicated FY22 ROE guidance of 8.5-9.0% would have incorporated top-ups. Regarding the lawsuits on duplicate credit transactions, CIMB believes it has a strong case against the plaintiffs and is defending itself in court. Besides, CIMB shared that its ideal CET1 ratio is now 14.0% and thus, capital management exercise is remote in 2022. Also, we gathered the bank has ear marked RM300m for GoPinjam lending via TnG.

Forecast. Unchanged since there were no material updates from the briefing. Also, underlying operational trends in 1Q22 are performing according to expectations. That said, we introduce FY24 estimates. CIMB aims to release its quarterly results on 31st May, Niaga on 28th April while Thai falls on 21st April.

Retain HOLD and GGM-TP of RM5.65, based on 0.90x FY23 P/B with assumptions of 8.9% ROE, 9.5% COE, and 3.0% LTG. This is largely in line to its 5-year and sector mean of 0.89-0.92x; we feel the valuation is warranted given its ROE output is similar to pre-pandemic level and industry average. Despite its recent share price weakness, we are not yet turning bullish, considering CIMB has one of the highest investment % concentration in HFT securities, making its P&L sensitive to MGS yield movement and the negative FVOCI reserve is unlikely to provide meaningful respite. Also, the recent fiasco surrounding its duplicate credit transactions does not help market sentiment.

Source: Hong Leong Investment Bank Research - 20 Apr 2022