We attended CIMB’s pre-2QFY21 results briefing where management provided clarity on the new blanket moratorium, expecting much lower mod loss this time around. Although management stood firm with their earlier guidances, we are cautious on the Malaysian front as prolonged movement controls could hamper economic recovery efforts. Maintain MP and TP of RM4.40.

Better R&R scuttled by targeted moratorium. Post 1QFY21 results, management presented that the group’s R&R profile had saw encouraging improvement, with Malaysia’s 14% declining towards 6%. However, this was blunted to high single-digit levels owing to the target moratorium introduced in June that was subsequently followed by the blanket moratorium. At the moment, there is no indication of the take-up rate of the blanket moratorium, but management expects that it would not account for more than 20% of the group’s outstanding loan base. This is due to the nature of it being opt-in as opposed to the previous opt-out approach which had a take up-rate of 60%.

With regards to mod losses, management anticipates a lower rate to be incurred due to the above and also given the flexibility to adjust terms. In FY20, the group incurred a mod loss of RM221m.

Interest income still unscathed. In 1QFY21, interest income growth came predominantly from NIMs expansions (2.52%, +8 bps) amidst relatively stable loans growth. For now, management believes that it could still register favourable traction, with target of 4-5% for FY21. On the local front, we believe this will be predominantly driven by the household segment, namely mortgages and hire purchase. Meanwhile, high CASA levels should keep NIMs lofty.

Asset quality in check for now. Management is still holding on to its 80-90 bps guidance for FY21 and cites stability between its books. However, we believe that the prolonged movement controls could put a toll on certain profiles which could cause delinquencies. The group had previously factored in macro-economic overlays of up to RM1.5b and further overlays could be considered.

Cost trimmings to ease CIR. As part of achieving the group’s CIR guidance of <52%, management has earmarked structural cost initiatives to reduce expenses by RM300m-RM500m. The group has thus far executed annualised savings of up to RM30m from its Thailand’s commercial segment exit, RM45m in Singapore from branch closures, and RM200m from the deconsolidation of Touch N Go Digital.

NOII could see some bumps. For the coming quarters, management guards against potential weakness in fee income. This is partly due to a high base enjoyed in 1QFY21 in the wealth management and unit trust fronts which is expected to ease. We also believe the stock trading segment could be affected given the softer investment landscape.

Post meeting, we leave our earnings assumptions unchanged for now.

Maintain MARKET PERFORM and TP of RM4.40. Our TP is based on an unchanged FY22E GGM-derived PBV of 0.70x (1.0SD below 5-year mean). While we see downside risk for the stock as limited for now, it still pales in comparison to its large cap contemporaries in terms of ROE, dividends and asset quality. That said, it could soon reap the rewards of its regional arm’s initiatives for focused approaches and with the restarting of economic activity spurred by vaccination, which is likely to benefit the larger banks first.

Risks to our call include: (i) higher/lower-than-expected margin, (ii) higher/lower-than-expected loans growth, (iii) better/worse-thanexpected movement in asset quality, (iv) stronger/weaker capital market activities, (v) favourable/unfavourable currency fluctuations and (vi) changes in OPR.

Source: Kenanga Research - 16 Jul 2021