The 21% YoY rise in 4Q22 core net profit was thanks to positive Jaws and lower loan loss provision. Besides, NIM expanded sequentially and loans growth held steady. However, GIL ratio shot up given that it was dragged by a steel-related company. Overall, results were in line and thus, forecasts were unchanged. We still believe CIMB’s risk-reward profile remains balanced, since share price has performed strongly in 2H22 and there are no fresh positive catalysts to drive it significantly higher. Retain HOLD and GGM-TP of RM5.85, based on 0.92x FY23 P/B.

In line with expectations. Excluding one-time intangible and fixed assets write off (in 4Q21), CIMB Niaga (93%-owned) registered 4Q22 core earnings of IDR1,199bn (-8% QoQ, +21% YoY), bringing FY22 sum to IDR5,041bn (+19% YoY). This came in line with our estimates, forming 100% of full-year forecasts but beat consensus at 109%.

QoQ. The 8% decrease in core net profit was no thanks to higher loan loss provision (+40%). Otherwise, we saw good top-line growth (+6%) on the back of lending (+2%) and net interest margin (NIM, +13bp due to upward credit repricing) expansion along with better non-interest income showing (NOII, +20% given stronger fees and treasury performance).

YoY. Core earnings climbed 21% due to positive Jaws (total income growth was 3ppt faster vs opex) and lower bad loan allowances (-6%). Again, at the top, NIM widened 43bp (mainly due to LDR optimization) while NOII rose 23% (thanks to stronger fees, treasury performance, and loans recovery).

YTD. Similar to YoY trend, positive Jaws as a result from stronger total income growth (+7%; NOII spiked 20%) and lower provision for bad loans (-9%), led to the 19% rise in core bottom-line.

Other key trends. Loans growth remained steady at +9.4% YoY (3Q22: +10.0%) but deposits lost traction to -5.9% YoY (3Q22: -2.9%). Sequentially, loan-to-deposit ratio (LDR) stayed flat at 88%. As for asset quality, gross impaired loans (GIL) ratio shot up 78bp QoQ to 7.01%; this was dragged by a steel-related company.

Outlook. We believe that quarterly NIM still has some room to expand on the back of upward corporate loan repricing and further LDR optimization. Besides, faster growth at the higher yielding auto loans segment will help to lift NIM. That said, credit growth is seen to moderate due to a softer domestic macro environment. Besides, GIL ratio is likely to climb but we are not overly worried as we believe Niaga is better equipped vs prior slumps; the large pre-emptive allowances built up in FY20-22 (accounts for 10% of total balance provisions) to combat Covid-19 pandemic woes and latency in credit loss from interest rate hikes, act as robust buffer to cushion for any short -term asset quality weakness.

Forecast. Unchanged as Niaga’s 4Q22 results were in line (it contributes c.20-25% to group’s PBT).

Retain HOLD and GGM-TP of RM5.85, based on 0.92x FY23 P/B with assumptions of 9.4% ROE, 9.9% COE, and 3.0% LTG. This is largely in line to its 5-year and sector mean of 0.84-0.86x; we feel the valuation is fair given its ROE output is similar to pre pandemic level and industry average. Overall, we still believe that CIMB’s risk-reward profile is balanced, seeing share price has performed strongly in 2H22 and there are no new positive catalysts to drive it higher. We note tailwinds which were supposed to be enjoyed by banks (like big NIM expansion, strong credit growth) over 2022-23 have instead been frontloaded to last year, turning next 10 months to be less exciting.

Source: Hong Leong Investment Bank Research - 20 Feb 2023