CIMB’s 4Q22 core net profit was down 6% QoQ given negative Jaws and higher loan loss allowances. That said, NIM expanded sequentially, loans growth held steady, and GIL ratio trended down. Overall, results came in within expectations 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 0.93x FY23 P/B.

Within expectations. Stripping away transformational costs, intangible asset write off and accelerated amortization, CIMB chalked in 4Q22 core earnings of RM1.3bn (-6% QoQ, +64% YoY), bringing FY22 sum to RM5.5bn (+19% YoY). This was in line with expectations, making up 101-103% of our and consensus’ full year forecasts.

Dividend. Proposed 2nd interim DPS of 13sen (vs 4Q21: 12.55sen), which brings total DPS to FY22: 26sen (vs FY21: 22.99sen). Ex-date: 13 March.

QoQ. Core earnings dropped 6%, no thanks to negative Jaws (total income grew 5ppt slower than opex) and higher loan loss provision (+48%). However, lower effective tax rate (-1ppt) provided some respite. Separately, we saw non-interest income (NOII) up 13% given better fees and forex gains. Also, net interest margin (NIM) expanded 2bp.

YoY. Robust total income growth (+13%) and the absence of provision made related to the double crediting of customers, led to a 64% jump in core bottom-line. However, the higher effective tax rate (+23ppt) limited earnings from growing at a faster rate.

YTD. Similarly, the 19% spike in core profit was driven by the 7% rise in total income and lower bad loan allowances (-25%). Again, the elevated effective tax rate (+9ppt) restricted bottom-line from expanding at a quicker clip.

Other key trends. Both loans and deposits growth held steady at +7.7% YoY (3Q22: +9.0%) and +3.2% YoY (3Q22: +1.0%) respectively. On a sequential basis, loan-to deposits ratio (LDR) dropped 2ppt to 91%. As for asset quality, gross impaired loans (GIL) ratio fell 22bp QoQ to 3.27%, thanks to its construction segment.

Outlook. We expect sequential NIM to shrink given: (i) repricing of matured deposits, (ii) CASA being utilized and substituted to FD, along with (iii) still stiff price competition for FD. Furthermore, loans growth is seen to moderate due to a softer domestic macro environment. Besides, GIL ratio is likely to climb but we are not overly concerned as we believe CIMB is better equipped vs prior slumps; the large pre-emptive allowances built up in FY20-21 and 2Q-4Q22 to combat Covid-19 pandemic woes and latency in credit loss from OPR increases, act as robust buffer to cushion for any asset quality weakness in the short-term.

Forecast. Unchanged since 4Q22 results were in line.

Retain HOLD and GGM-TP of RM5.85, based on 0.93x FY23 P/B with assumptions of 9.6% ROE, 10.1% COE, and 3% LTG. This is largely in line to its 5-year and sector mean of 0.84-0.85x; 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 last year 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 - 1 Mar 2023