• In a recent meeting, guidance given on 2021E net credit cost remained unchanged at 80-90bps (2020: 144 bps). 1Q21 may potentially see higher provisions from Thailand and Indonesia
• It remained a fairly quiet 1Q21, with loan growth being muted within the group (as it exits the commercial/business banking in Thailand and Indonesia). Malaysia’s consumer segment, however, saw better traction
• We maintain our HOLD rating and TP at RM4.20 (at a 0.7x 2021E P/BV). Our 2021E-23E forecasts are unchanged. Overall, we do not expect sizeable chunky impairments in 2021, as most have been provided for in 2020 while the low-funding cost environment may continue to fuel NIM expansion

We Expect a Recovery in 1Q21 Net Earnings on Lower Provisions

We expect CIMB’s 1Q21 net earnings to recover on a yoy and qoq basis, on the back of lower provisions in the absence of chunky impairments (which took place in 1Q20 due to exposure to an oil trading company). Nonetheless, as CIMB is exiting the commercial banking segment in Thailand and business banking in Indonesia, we expect to see higher provisions from these two countries. The Indonesian unsecured consumer loans also saw some deterioration in 1Q21. CIMB which currently has an outstanding RM1.53bn in pre emptive buffers and overlays (with the B40 group sufficiently provided) as at Dec20, may not require as much pre-emptive buffers in 2021, in our view.

Loans Under Targeted Assistance Programme Somewhat Stabilized

According to management, loans under the Targeted Assistance Programme (TAP), which stood at 15% as at Dec20, has trended lower as it also coincided with the end of programme in Thailand and Indonesia. There was some slight increase in Singapore. The Malaysia consumer portfolio (under TAP) remains stable but some deterioration in the asset quality of Malaysian corporates could have seen it placed under potential R&R. We believe that some of these exposure are directly COVID- 19 impacted sectors. Meanwhile, loans related to the O&G sector (at 2.5% of loanbook as at Dec20) already have a 94% impairment coverage ratio. At this juncture, management is tracking the repayment status of borrowers but any writeback in overlays may not be in the near-term as these borrowers remain under observation.

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. No changes in our 2021E/22E/23E forecasts and assumptions: NIM at 2.32%- 2.35%; loan growth: 2-3%; CIR at 51-52%; NCC at 70-80bps. Downside/upside risks: interest rate cuts/hikes; risk of emergence of a COVID-19 4th wave.

Source: Affin Hwang Research - 26 Apr 2021