We came away from CIMB’s pre-1QFY21 results briefing feeling neutral. Management maintains its guidance for FY21 and shared that loans, credit cost and NIMs are performing as expected. 1QFY21 repayment programs are to report improvement but with some accounts falling out as opposed to being rehabilitated. Still, we keep our assumptions that CIMB could register strong YoY growth but prefer its larger cap peers. Maintain UP and GGM-derived PBV of RM3.50.

Well-rounded loans. Management guided that 1QFY21 loans are sustained on a YoY basis with signs of picking up in the coming months, supported by mortgages (31% of total loans) amidst some setbacks from the corporate side (48%). Regionally, strength is coming mainly from Malaysia (62% of total loans) with Indonesia (15%) and Thailand (9%) being muted at best. For FY21, management holds a target of 4-5% YoY loans growth.

Asset quality expectations unchanged. Ongoing trends did not affect management’s credit cost guidance of 80-90 bps for FY21, having registered c.145 bps in FY20 owing to frontloading of provisions previously. At the moment, management believes that there is sufficient buffer from further worsening of the Covid-19 pandemic from its RM1.5b management overlays which also accounts for high risk B40 accounts. With that, writebacks on overlays might not materialise in the near-term.

Repayment assistance composition lower in 1QFY21 from 15% group-wide, although management did not disclose the quantum. This reduced level can be attributed to the ending and expiry of relief programs in Indonesia and Thailand with some accounts being reclassified for impairment. Meanwhile, Singapore is expected to be better in terms of rehabilitated accounts. Locally, we reckon that there could be further applications, similar with other banks due to hurdles brought by the MCO 2.0.

NIMs should be stable to marginally expanding, as the group maintains an expanding CASA-to-deposit mix, mainly driven by Malaysia and Indonesia. As there is less indication of asset yields to show significant gains, improvement could come from further optimisation of balance sheets and fixed deposit re- pricing.

Goodwill write-offs to be staggered. Relating to the goodwill accumulated (FY20: RM7.76b) by the group from acquisitions, management opines that it would likely spread its intended write-off between FY21 and FY22, with a larger proportion being booked in 2HFY21. This is to mitigate the reporting of losses which could stir expectations on reported numbers. That said, management assures that write-offs from goodwill should not affect dividends or capital. While we are neutral on the treatment of goodwill, the write off should technically, lift ROEs going forward.

Post-update, FY21E/FY22E numbers are unchanged as we believe our assumptions are fair for now and while goodwill impairment will impact headline NP (to be accounted post-results), the CNP should be unaffected. That said, we are left feeling neutral as we still hold to our concerns that CIMB may have several unfavourable exposures that could lead to surprises.

Maintain UNDERPERFORM and TP of RM3.50. Our TP is based on an unchanged 0.60x FY22E GGM-derived PBV of 0.61x (1.5SD below 5-year mean). While CIMB is expected to register an EPS growth of 176% in FY21E, we believe this is already priced in, given the impairment shock in 4QFY20. Overall, we are less excited on CIMB as compared to its outperforming peers. Possibly from its less favourable regional exposures, it houses a GIL ratio of 3% whereas its larger cap peers come in at <3%. Upside impairment risks are also deemed greater in our opinion. Additionally, its CET1 ratio and LLC are intact only with the help of writing back regulatory reserves.

Source: Kenanga Research - 26 Apr 2021