FY22 net profit of RM5.44b (+27%) and 26.0 sen dividends are within expectations. The group has exceeded most of its FY22 targets and is set to keep the momentum going towards FY24 in conjunction to its Forward23+ ambition. That said, it will not be immune to industry headwinds, such as slowing economic growth and deposits competition. Maintain OUTPERFORM with a higher rolled over GGM-derived PBV TP of RM6.55 (from RM6.40). CIMB is one of our 1QCY23 Top Picks.

FY22 within expectations. FY22 reported net earnings of RM5.44b are within our full-year forecast (104%) and consensus full-year estimate (101%). A second interim dividend of 13.0 sen was declared, amounting the full-year payment to 26.0 sen which is spot on to our expectations (c.50% payout).

YoY, FY22 net interest income saw an 8% increase thanks to a stronger overall regional loans footprint (+8%) with supportive net interest margin (2.57, +6bps). Excluding 1QFY21’s one-off revaluation gain of RM1.16b from TnG Digital, non-interest income actually grew by 6%, rejuvenated by returning fee income and higher loan recoveries. Group cost-income ratio managed to shed to 47.1% (-1.3ppts) as top line outpaced higher operating spend. With regards to credit cost, FY22 came to 51bps (-22bps) as provisioning needs normalised post-Covid. All-in, FY22 reported net profit of RM5.44b (+27%).

Briefing highlights. With the close of FY22, the group appears satisfied with its earnings delivery and solidifies its course to meet its Forward23+ objectives. At least in FY23, the group opines that it can continue to register growth across its key regions, though mainly led by Malaysian operation (with c.60% of total loans and deposits book). Still, slowing economic prospects is expected to be felt in most regions and hence present loans growth targets are weaker than FY22 (5-6% vs 7.8%). The same goes for the shift in interest rate dynamics, where broad competition for deposits could translate to 5-10bps erosion in group-level interest margins. At the meantime, the group continues to hold on to its RM2.7b provisional overlays tightly. That said, being mostly Covid-related, we believe there is a growing possibility that the group may consider utilising it by this year. Not accounting for possible writebacks, the group cautions for credit cost to linger at similar levels in FY22, at 45-55bps.

Forecasts. Post results, we tone down our FY23F earnings by 7% as we lift our credit cost assumptions to be closer the group’s guidance amidst prevailing macro risks, not factoring for possible writebacks as well. We also introduce our FY24F numbers.

Maintain OUTPERFORM with a higher TP of RM6.55 (from RM6.40). We roll over the valuation base year to FY24F for a higher applied BVPS of RM6.63 (from RM6.48) against an unchanged GGM-derived PBV of 0.94x (COE: 11.0%, TG: 3.0%, ROE: 10.5%). We also applied a 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 (15% vs. industry average of 5%) while offering attractive dividend yields (c.6%) in the medium-term. CIMB is one of our 1QCY23 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 Mar 2023