1HFY22 core PATAMI of RM2.71b (+4%) and 13.0 sen dividend are above our expectations, as earnings were supported by better-than expected group NOII results. The group strengthens its FY23 guidances but holds that uncertainties still prevail from possible global disruptions. Still, we believe current trajectories are in the group’s favour reflecting on its regional operations to potentially balance out adversities. Maintain OP with a higher GGM-derived PBV TP of RM6.05 (from RM5.70).

1HFY22 above our expectation. 1HFY22 core PATAMI of RM2.71b made up 56% of our full-year forecast and is in line with consensus, accounting for 53% of the full-year estimate. The positive deviation on our end is owed to better than-expected NOII performance. Although it still declined on a YoY basis, the quantum was less unfavourable due to better trading results in its Indonesia and Thailand operations. The 13.0 sen interim dividend declared is also deemed to be above our earlier 23.0 sen full-year assumption (c.45% payout).

YoY, 1HFY22 NII increased by 2% as group-wide loans rose (+7%, mainly led by Malaysia and Indonesia) but paired with lower NIMs (2.48%, -7 bps) in less interest friendly landscape in Indonesia and Thailand. Excluding 1QFY21 one off revaluation gain of RM1.16b from TnG Digital, NOII was flattish as better fee-based income was offset by a decline in treasury performance. That said, the treasury losses were mainly incurred locally as Indonesia and Thailand operations contributed positively. Meanwhile, lower provisions booked brought about a credit cost of 41 bps (-33bps), and core operating profit improved 19%. Overall, with higher effective taxes owing to prosperity tax charges, 1HFY22 core PATAMI came in at RM2.71b (+4%).

Briefing highlights. With the recent earnings delivery, the group opines that it could outpace its earlier guidance, namely in terms of ROE, loans growth and credit cost. Our tracking of its regional operations seemingly indicates complimentary exposures. CIMB Niaga (Indonesia) has shown a growing loans presence but operates in a more interest rate sensitive landscape. Meanwhile, CIMB Thailand is regaining its footing post-unwinding of commercial business whilst positioning itself well in investment markets. Operationally, the group does not expect a complete writeback of provisions made following the double crediting incident in 1QFY22 but should not incur further bookings as it has been fully accounted for. All said, the group will still remain prudent in managing key units as they are still cognizant that any adverse turns in macro conditions could affect most of its regional efforts in the near term. That said, we believe any such instances will not be exclusive to the CIMB Group and will be sector-wide in nature.

Forecast. Post results, we raise our FY22F/FY23F earnings by 8%/3% as we incorporate higher NOII assumptions to account for strengths in Indonesia and Thailand businesses. We also fine tune our credit cost and loans growth assumptions to be closer to guidance.

Maintain OP with a higher TP of RM6.05 (from RM5.70). Although our revised earnings did not significantly raise our FY23F BVPS of RM6.44, we improve our GGM inputs to factor in a more sustainable earnings trajectory for the group aided by its diversified operations, where we derive an applied PBV of 0.94x (COE: 11.0%, TG: 3.0%, ROE: 10.5%) from 0.88x. The stock appears to be strong pick for investors seeking regional diversification. In terms of medium-term outlook, the stock leads in terms of forward earnings growth (25% vs industry average 20%) with fairly attractive FY23F dividend yield (6%). There is no adjustment to our TP based on ESG of given a 3-star rating as appraised by us.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Sept 2022