We attended CIMB’s pre-1QFY22 results briefing which left us with a hint of caution. Though we are comforted by improving repayment assistance mixes, the bank faces possibly higher provisions amidst the ongoing double crediting issue and industry-specific headwinds. That said, we believe these could just be near-term pitfalls with current share price weakness presenting buying opportunities. Maintain our TP of RM5.65 but upgrade rating to OP (from MP).

Loans growth expected regionally. Going forward, the management anticipates group-wide loans growth in FY22, likely leveraging on the reopening of borders and ensuing economic recovery. Previously, CIMB Thai saw a diminishing loans base with the disposal of its commercial business but is now expected to register a turnaround in its portfolio size. At the moment, the ongoing Russia- Ukraine conflict should not impede the group’s loans growth target for FY22 (5- 6%).

Prepayment assistance narrowing as programs lapse. Management guided that as of Mar 2022, group level R&R accounts make up 9% of total loans (from 18% in Jan 2022). Main improvements came from Malaysian accounts, which we suspect was inflated by a high T20 proportion owing to the eligibilities allowed by the PEMULIH program. Management also cited SMEs regaining financial health. Delinquencies stand at less than 1% which management continues to eye cautiously but we believe are at highly manageable levels.

Patching up the double crediting issue. Recall that the group booked RM281m provision concerning processing errors by CIMB’s MoneySend service in 4QFY21. It entails duplicated transactions due to limitations in its processing capabilities which the group is actively rectifying. Steps are being taken to maximise the recoverability of these funds, but 1QFY22 could see additional allowances albeit not as severe as the RM281m provision mentioned above.

Impairment allowances to remain prudent. To date, the group had allocated RM2.2b worth of pre-emptive provisioning which management intends to utilise a share of its Malaysian bookings (RM1.1b) on delinquent accounts. We believe this are for long standing BAUs which have demonstrated healthy repayment capabilities. Meanwhile, fluctuation in commodity prices may present a volatile operating environment for certain accounts that caution the group to maintain RM600m in macroeconomic variable overlays. On the flipside, management alluded that developments in the oil & gas scene may warrant further topping up of specific provisions. Based on 4QFY21’s readings, 46% of its oil & gas assets have been impaired, with Malaysia being the predominant region of the group’s exposure (74%).

NOII to pick up sequentially. Given the improved market sentiment in the recent months, management opines that it could report stronger trading income (albeit not as strong as 1QFY21), in addition to larger wealth management fees. That said, we are wary that the fluctuation in bond yields could hamper its fixed income returns and potentially offset gains.

Post update, we cut our FY22E earnings by 5% as we input higher credit cost assumptions from 50bps to 60bps to be in line with management’s guidance. We previously anticipated much less provisioning requirements but management’s remarks may warrant more conservative bookings.

Maintain our TP of RM5.65 but upgrade rating to OUTPERFORM (from MARKET PERFORM). We believe current price levels may present a buying opportunity for the stock with the softer sentiment arising from the recent MoneySend issue which bears no long-lasting implications to the group, given that remedial measures are being implemented. Post update, the stock would register the strongest YoY EPS improvement amongst its peers (31% vs. 20%). Our TP is premised on an unchanged FY23E GGM-derived PBV of 0.88x (mean).

Source: Kenanga Research - 20 Apr 2022