• Maintain BUY with MYR6.40 TP, 26% upside, c.4% yield. CIMB will release its 1Q22 results on 31 May. Updates from an analyst meeting suggest that there should be no negative surprises, particularly in the area of impairment charges. There have been moderate improvements in underlying operations, and management remains comfortable with credit cost guidance. Share price is down 7% YTD following its poor 4Q21 results. Still, at 0.8x P/BV, we believe concerns over asset quality are priced in. Our TP is based on a GGM-derived intrinsic value of MYR6.45, with a 0% ESG premium/discount.

• Asset quality resilient. Loans under repayment assistance (LURA) have declined to 9% of group loans in Feb 2022 (Dec 2021: 20%) on progressive expiry of relief programmes. Currently, less than 1% customers that have exited relief assistance are behind in their repayments. Management believes default rates would tick up, but should normalise in the quarters ahead.

• Comfortable with credit cost guidance. In early April, 650 CIMB Bank account holders filed a MYR650m class-action suit against the bank over a processing error related to the “MoneySend” fund transfer transactions in late 2021. According to management, the bank will follow the legal process as its legal counsel believes CIMB has a strong case. Management reiterated the possibility of additional provisions arising from the double crediting of customers’ accounts. Even if full provisions are made for outstanding unrecovered funds, the impairment charge will be lower than the MYR281m taken in 4Q21. Management remains comfortable with its credit cost guidance of 60-70bps for FY22F (FY21: 73bps) that is based on conservative stance on non-retail accounts, namely exposures in oil & gas, leisure, and a steel company in Indonesia.

• Moderate loan growth, stable NIM. While there are no visible signs that the surge in CPO price is having a positive impact on loan demand, CIMB continues to see a slight pick-up in loan growth in 1Q22. Aside the turnaround in Thailand, there is modest sequential growth in Malaysia, Indonesia, and Singapore. Also positive is the stable cost of funds which points to sustained NIM in 1Q22. Deposit competition, which emerged in Oct-Nov 2021, stabilised as the banking system remains flushed with liquidity.

• Healthy QoQ growth in non-II lifted by higher transaction fees and FX gains, which helped offset lower income from trading and investments. Core fee income was stable QoQ. Against 1Q21, non-II would be lower as 1Q21 had the benefit of strong trading gains and wealth management fees.

• Expect 1Q22 net profit of MYR1.07bn. CIMB is scheduled to release its 1Q22 results on 31 May. We estimate net profit at MYR1,066m which would be c.22% of our and consensus’ FY22F. Growth of 25% QoQ in core net profit would be driven mainly by lower provisions (-42% QoQ) while PIOP is expected to rise 7% QoQ. Compared to 1Q21, core net profit would be down 20% YoY largely due to lower non-II.

Source: RHB Research - 20 Apr 2022