The 20% YoY rise in 1Q22 core net profit was thanks to stronger NOII and drop in loan loss allowances. Also, loans growth held steady. However, NIM slipped sequentially and GIL ratio wriggled upwards. That said, results were in line and hence, forecasts were unchanged. We are not yet turning bullish, despite price weakness given that 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.

Within estimates. Excluding one-time intangible and fixed assets write off (in 4Q21), CIMB Niaga (93%-owned) registered 1Q22 core profit of IDR1,194bn (+20% QoQ and YoY). This came in line with estimates, accounting for 26-27% of our and consensus full-year forecasts.

QoQ. The 20% increase in core net profit was thanks to positive Jaws as total income rose 9ppt faster than opex. Fuelling this was better non-interest income (NOII, +53%) given strong gains from forex and derivatives (tripled) along with marketable securities (+73%). Moreover, there were more recoveries during the quarter (+93%). However, the slight net interest margin (NIM) contraction (-1bp) and higher loan loss allowances (+7%) capped earnings from growing quicker.

YoY. Core profit jumped 20% on the back of a 5% rise in total income and 9% drop in provision for impaired loans. At the top, we again saw robust NOII (+22%), thanks to strong recoveries (doubled), more gains from marketable securities (+74%), forex and derivatives (+23%). That said, NIM was a drag as it slipped 66bp.

Other key trends. Loans and deposits growth remained steady at +5.3% YoY (4Q21: +3.9%) and +18.6% YoY (4Q21: +16.3%). Sequentially, loan-to-deposit ratio nudged up to 77% (+2ppt). As for asset quality, gross impaired loans (GIL) ratio increased 9bp QoQ to 6.75%; this was caused mainly by the trading and HORECA segment.

Outlook. In upcoming quarters, NIM is seen to improve as there will be less reversal of interest accruals since most retail and emerging biz banking loans under repayment assistance have ended. Also, Niaga looks to skew its asset composition more towards loans (higher yield) instead of Govies. Considering this along with economic recovery, loans growth is expected to gain further traction. However, GIL ratio is likely to wriggle upwards given that rescheduled and restructured loans are unfrozen and needs to be classified as impaired. Regardless, we are not overly concerned as Niaga has already made heavy pre-emptive provisions in FY20-21 (38% loans at risk coverage).

Forecast. Unchanged as Niaga’s 1Q22 results were in line (it contributes c.20-25% to group’s PBT); CIMB Group is poised to release its 1Q22 financials on 31st May.

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 0.89-0.94x; 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 - 29 Apr 2022