FY21 core PATAMI of RM4.65b (+289%) came below our expectation but within consensus as we had anticipated a stronger front by NOII streams. Meanwhile, their 50% dividend payout proved a positive surprise. We believe the stock is fairly valued at current levels but may be viewed as a proxy to economic reopening given its size. Maintain MP but with a higher TP of RM5.40 (from RM5.20).

FY21 below expectations. FY21 core PATAMI of RM4.65b came below our estimates, making up 87% of our estimate but is within that of consensus (98%). The negative deviation from our end was due to our overly bullish top line assumptions, particularly with NOII. However, a second interim dividend of 12.55 sen was declared for a full-year payment of 23.0 sen (50% payout), which is above our previous 20.0 sen target (40% payout).

YoY, NII gained 12% as group-wide loans increased by 3% in addition to enjoying a NIM increase of 15 bps (2.51%). NOII registered a 27% growth, but excluding the one-off revaluation gain of RM1.16b from TnG Digital, it would have been somewhat flattish. Group-wide provisioning needs halved (-51%) in a better operating climate. Recall that in 4QFY20, the group reported an annualised credit charge of 162 bps worth of pre-emptive measures against Covid-19 which dragged full-year earnings. Given the stark absence of such heavy booking and excluding exceptional items during the year, FY21 normalised PATAMI came in at RM4.65b (+289%).

QoQ, both NII (+2%) and NOII (+15%) saw sequential improvements. Loan impairments were heavier in 4QFY21 as the group made some provisions on certain Indonesian accounts but lacked the massive RM1.23b one-off goodwill impairment in 3QFY21. Adjusting for this item in the prior quarter, 4QFY21 registered a 34% decline in normalised earnings at RM810.5m.

Briefing highlights. Management presented its FY22 targets where they emphasised that they remain cautiously optimistic given that regional performances could be mixed. Broadly, top-line should continue to be reflective of stronger loans take-up across all regions, but interest margins could face challenges as competition for deposits will likely to lead to NIMs contraction. This might be more obvious in Indonesia where CIMB Niaga is thought to be more interest sensitive (albeit give its high NIM base of ~5%). Thailand could also see softer results on more selective strategies in its consumer and commercial banking. That said, locally, challenges may be less persistent with the most encouraging indication arising from TRAs coming off gradually and little sign of risk of missed payments. (Refer to the overleaf for FY22’s guidance).

Post results, we cut our FY22E earnings by 11.4% as we narrow our NOII assumptions. We also recalibrate our credit cost assumption to be closer to management’s guidance of 60-70bps. That said, the flattish reported profit is mainly due to the incurrence of prosperity tax for the year, else we may see a 7% earnings expansion. We also introduce our FY23E estimates.

Maintain MP with a higher TP of RM5.40 (from RM5.20). We keep our GGM- derived PBV of 0.84x (0.5SD below mean) but roll over our valuation base year to FY23E. At current levels, we believe the risk-to-reward for CIMB is fairly balanced. This is partly due to the group’s wide regional exposure which could offset the wins from other segments due to their respective regional challenges. That said, being a market leader, the stock is bound to be viewed as a key proxy to economic recovery and could continue to enjoy better trading sentiment. Still, we find its dividend potential to be wanting.

Source: Kenanga Research - 1 Mar 2022