We maintain our GGM-derived PBV TP of RM6.35 (COE: 11.7%, TG: 2.0%, ROE: 10.5%) and OP call. CIMB could continue to present resilient numbers as asset quality concerns are well checked against recessionary concerns. Meanwhile, it will continue to benefit from the interest rate upcycle to support NIMs with NOII possibly remaining buoyant as compared to peers. CIMB is one of our 4QCY22 Top Picks.

CIMB hosted a sell-side 3QFY22 pre-results briefing yesterday. Key takeaways are as follows:

- Repayment assistance profile stagnant but overall marginal. The group indicated that its TRA levels are constant at 3% since July 2022. In addition, 6% of these accounts are said to have missed payments. We reckon that the underlying impact from here would remain insignificant though the group suggest its consumer portfolio may leave an uptick in its ECL readings. The group anticipates another 25 bps rise in OPR from Bank Negara Malaysia in the November meeting with a further 50 bps in 2QFY23, which it has already factored in their sensitivity analysis for overlay adequacy.

- Provisioning could be broader in nature. The group opines that further overlays incorporated could only rise from shifts in macro conditions, likely contrary to specific targeted accounts. That said, the group will likely restage accounts that have satisfied their observation period and writeback provisions accordingly. Still, this may be balanced by impairments from other accounts which warranted to group to keep its credit cost guidance (50-60 bps) for now.

- Fiercer grounds in deposit competition. With the rising rate environment across its operating region, the group anticipates further attrition of its CASA levels (2QFY22: 44%), although such peakish levels were already deemed unsustainable to begin with. Most of the churns towards fixed deposits are made up of consumers but the group expects its SME clientele to follow suit. That said, the interest rate upcycle is still a net benefit to the group, in tandem with the industry.

- NOII could still be supportive. Attributed to its regional performance, the group expects its NOII performance to be stable as fees from its wholesale segment could be stable and NPL recoveries to cushion decline in trading activities. That said, the normalisation of such numbers could translate to weaker QoQ performance but should still remain stronger YoY relative to the market.

Forecasts. Post updates, we leave our FY22F/FY23F assumptions unchanged.

Maintain OUTPERFORM and TP of RM6.35. Our TP is based on an unchanged GGM-derived PBV of 0.88x (COE: 11.7%, TG: 2.0%, ROE: 10.5%) with an applied 5% premium granted by CIMB’s 4-star ESG ranking thanks to headways in green financing. Fundamentally, the stock is supported by its regional diversification, especially in terms of NOII which most of its peers lack. CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth (26% vs. industry average of 22%) while offering attractive dividend yields (6%) in the medium-term. CIMB is one of our 4QCY22 Top Picks.

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) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Nov 2022