• 2020 net profit came in at RM1,194m (-73.8% yoy) and was below our and consensus estimates. CIMB’s 4Q20 was hit by elevated credit loss (ECL) provisions, as expected, and higher impairments on derivatives
• On a more positive note, management expects the 2021E net credit cost (NCC) to be lower at 80-90bps, while not expecting a similar level of credit losses for bonds
• We maintain our 2021E-22E earnings forecasts and introduce the 2023E earnings forecast. Maintain HOLD and TP of RM4.20 (based on 0.7x CY21E P/BV target). CIMB has proposed an interim DPS of 4.18sen for 4Q20

Pre-emptive Provisions in 4Q20

CIMB saw another weak quarter, as the 4Q20 net profit of RM215m (-75% yoy; +10.6% qoq) was hit by an impairment on bonds and derivatives while RM616m of pre-emptive provisions (comprising management overlay and macroeconomic forecast changes) were recognized. Apart from that, there were provisions on Covid-19 related sectors and impairments in Singapore and on legacy accounts. The 2020 NCC rose to 146bps vs. 44bps in 2019. Other than these, there were no other negative surprises. 2020 operating income was down 3.4% yoy due to lower non-interest income (-6.9% yoy) while fundbased income was relatively flat yoy (due to the impact of the net ‘mod-loss’ of RM281m as well as the rate cuts). On a more positive note, the 4Q20 NIM recovered by 6bps qoq to 2.37% qoq due to lower COF and stronger CASA growth.

More Positive Guidance From Management for 2021

Management has more positive guidance for 2021, namely, NCC of 80-90bps, ROE at 6-7%, loan growth at 4-5% yoy, and potential NIM expansion of up to 10bps in 2021 (as the group benefits from ample funding at a substantially lower COF). Meanwhile, though loans under the moratorium and R&R have further increased in Malaysia and Indonesia, management noted that the pace of new applications for financial assistance has tapered off since January. Nonetheless, we continue to exercise caution and have not changed our NCC assumption of 80bps for 2021.

Maintain HOLD, Price Target Unchanged at RM4.20

We maintain our HOLD rating on CIMB, with our 12-month PT of RM4.20 (based on a 0.7x P/BV on CY21E BVPS) underpinned by a CY21E ROE at 6.9% and cost of equity of 8.5. Our 2021E/22E/23E assumptions: NIM at 2.32%-2.35%; loan growth: 1-3%; CIR at 51-52%. Downside/upside risks: interest rate cuts/hikes; weaker-than-expected asset quality under a prolonged MCO in Malaysia.

Source: Affin Hwang Research - 1 Mar 2021