9MFY22 core PATAMI of RM4.12b (+8%) is within expectations. The group is confident that its topline parameters would remain strong but remains cautious as interest rate pressures could creep across its regional operations. It could further top up provisions given sufficient room and capital to do so on specific accounts. Still, the group’s diversified operations stand out to us in deleveraging concentration risks. Maintain OP and GGM derived PBV TP of RM6.40. CIMB is one of our 4QCY22 Top Picks.

9MFY22 within expectations. 9MFY22 core PATAMI of RM4.12b made up 78% of our full-year forecast and 76% of consensus full-year estimate. No dividend was declared as expected, given the group typically pays dividends biannually.

YoY, 9MFY22 net interest income (+6%) was supported by a larger regional loans base (+9%) amidst a fairly stable group-wide net interest margin (2.51%, +1bps). Interest expansion in Malaysia was likely offset by rate pressures from Indonesia. Excluding 1QFY21 one-off revaluation gain of RM1.16b from TnG Digital, non-interest income saw a modest 4% growth thanks to better fee-based performance in the wholesale front with recoveries in non-performing accounts. Overall provisions also showed improvement with credit cost coming in at 43 bps (-27 bps) as impairment needs normalised post-Covid. Adjusting for other one-off items incurred in FY21, 9FY22 core PATAMI came in at RM4.12b (+8%).

Briefing’s highlights. Having reported a better-than-expected YTD loans growth, the group is confident that it can sustain present levels and raised its FY22 guidance to 8-9% (from 7.5-8.0%). Increments are coming from all fronts, with key local and Indonesian markets benefiting the most from the ongoing recovery. That said, this will likely lead to increments in operating expenses but the group had reaffirmed that a cost savings of up to RM441m has been identified from its FY22 cost restructuring. As interest rate hikes become commonplace in the group’s key markets, it opines that it could net higher interest margins by the year-end where previously downside pressure was more likely, with a 5 bps improvement possibly in the cards. Still, competition for deposits will likely remain rampant especially for rate-sensitive markets like Indonesia. Meanwhile, although the group is under booking its credit cost against its target of 50-60 bps, additional provisions could be made in 4Q to provide wider coverage, particularly for its legacy accounts. No release of its RM2.7b overlays are planned as of yet.

Forecasts. Post results, we slightly tweak our FY22F/FY23F earnings from model updates.

Maintain OUTPERFORM and TP of RM6.40. Our TP is based on an unchanged GGM-derived PBV of 0.94x (COE: 11.0%, TG: 3.0%, ROE: 10.5%) on FY23F BVPS 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 (c.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) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Dec 2022