1HFY21 core PATAMI of RM2.62b (+233%) and interim dividends beat expectations on better structural performance. However, management is wary that 2HFY21 would not be as robust given economic and competitive hurdles to come. Loans growth guidance was reduced, but ROE and CIR were lifted. We raise our FY21E/FY22E earnings while also ascribing a higher sustainably ROE to our GGM-derived PBV TP. Maintain MP with a higher TP of RM4.80 (from RM4.40).

1HFY21 beat expectations. 1HFY21 core PATAMI of RM2.62b exceeded our/consensus expectations, making up 76%/66% of respective full-year estimates. Although 2HFY21 is expected to perform softer on slower loans growth and higher provisioning needs, the gap in performance was due to underappreciated other fundamentals such as better CIR and lower non financing provisions. An interim dividend of 10.44 sen declared (40%) was also better-than-expected, reflective of the stronger earnings.

YoY, inclusive of a one-off RM1.16b revaluation gain from TnG Digital, 1HFY21 total income came in at RM10.63b (+33%) arising from a stronger NII (+15%) backed by healthy NIMs (2.55%, +22 bps) and loans base (+3%). CIR was leaner at 47.8% (-7.7ppt) from the higher top-line. In terms of provisioning, the group jotted in less allowances (-44%) partly due to having them booked pre-emptively in past quarters. The 2QFY21 period also saw some one-offs in the form of: (i) RM17m in restructuring costs; and (ii) RM241m in intangible write offs. Overall, net of tax, core PATAMI registered at RM2.62b (+233%).

QoQ, 2QFY21 NII gained 3% as marginal improvements to NIMs and loans continued. Excluding TnG’s revaluation gains, NOII fell by 18% as wealth management and trading business did not performed as favourably as 1QFY21. Impairment provisioning eased up by 10%, but this is inclusive of additional overlays of RM110m that management inserted amidst growing uncertainties from the June lockdown. All in, with the same abovementioned adjustments, core PATAMI was 4% weaker at RM1.28b.

Key briefing’s highlights. Challenges will continue to persist into 2HFY21, with management anticipating competition for loans to take up a notch. That said, management intends to be selective on where it will defend its client base, tilting especially towards the higher ticket clientele who support NOII. With that, loans growth guidance shrank to 2-3% for FY21 (from 4-5%). No thanks to PEMULIH, the group is seeing its TRA proportions rising to 21% of outstanding loans in July 2021 (from 13% in June 2021 with regional numbers being stable or improving). Management is cautious that the economy is not out of the woods yet and intends to keep its credit cost guidance of 80-90 bps to fuel further provisioning needs in anticipation of a prolonged economic lull. On the flipside, the group is confident that it has delivered firmly in some aspects and raised FY21 ROE targets to 7-8% (from 6-7%) and CIR to <50% (from <52%).

Post results, we raise our FY21E/FY22E earnings by 21%/16%. In addition to model updates, we also toned down our non-financing impairments and cost assumptions.

Maintain MP with a higher TP of RM4.80 (from RM4.40). In addition to our revised earnings, we ascribe higher ROE assumptions in our GGM-derived PBV valuations, leading to an expanded 0.78x FY22E PBV (0.5SD below mean) from 0.70x. CIMB’s resiliency is starting to resurface as it sailed past uncertainties during the early days of Covid-19. While there are still similar challenges to come, we believe the stock could be a more sustainable pick going forward should there be a correction in its price.

Risks to our call include: (i) higher/lower-than-expected margin squeeze, (ii) higher/lower-than-expected loans growth, (iii) better/worsethan-expected deterioration in asset quality, (iv) improvement/slowdown in capital market activities, (v) favourable/unfavourable currency fluctuations, and (vi) changes to OPR

Source: Kenanga Research - 1 Sept 2021