• Maintain BUY and MYR6.40 TP, 23% upside and c.4% yield. CIMB will release its 2Q22 results on 30 Aug. Updates from a meeting with sell-side analysts point to healthy momentum in lending operations, stable asset quality, well controlled cost growth, but continued softness in non-II due to the volatile capital markets. Valuation at P/BV of 0.9x against ROE of >9% in FY23F is compelling given improved fundamentals. Our TP is based on a GGM-derived intrinsic value of MYR6.42, with a 0% ESG premium/discount.

• OPR normalisation impact manageable. Management expects the overnight policy rate (OPR) to normalise back to pre-pandemic levels. With the increase expected to be gradual, management believes borrowers would have sufficient runway to adjust to the higher interest rates. There is no discernible impact from the OPR hikes, for now, but management is cautious and expects some impact on demand and asset quality from 4Q22 to 1Q23.

• Sustained asset growth. Underlying demand is healthy on the reopening in Malaysia, Indonesia and Thailand. The bank continues to see lending opportunities in residential mortgages, auto financing and business banking. Recall that CIMB’s loans growth strengthened to +1.8% QoQ in 1Q22 from +1.5% QoQ in 4Q21, having been flattish due to shifts in regional portfolios.

• Deposit pricing remains rationale. Like peers, CIMB is lengthening the duration of its deposits. In Malaysia, there has been an increase in deposit campaigns but pricing is still very rationale. In Singapore, however, fixed deposit rates are getting more aggressive. This, coupled with attrition of CASA deposits, would likely see the bank giving back some of the expected NIM expansion in 2Q22 and 3Q22. Earlier, management guided for NIM to be stable to +5bps for FY22. To recap, a 25bps OPR hike would translate to an annualised uplift of MYR80-100m in net interest income and 2-3bps in NIM.

• Asset quality still very benign. Rescheduled and restructured (R&R) loans have dipped to 4% of total loans in June vs 5% in March and 3% during pre- pandemic times. There is a slight uptick in Malaysian customers that have exited relief assistance that are behind in their repayments (1Q22: 1.8%; pre- pandemic: 3-4%). Although there is no sign of stress, management plans to put aside more overlays for its consumer and business banking portfolios. At end-Mar 2022, management overlays stood at MYR2.5bn. On the double crediting of customers’ accounts related to the “MoneySend” fund transfer transactions in late 2021, no additional provisions were required in 2Q22. That said, there is little progress in its recovery efforts.

• Modest non-II growth. 2Q22 was very challenging for CIMB’s capital markets business. Investment banking activities would likely remain subdued due to poor visibility for 2H22F. All in, non-II is expected to be slightly higher QoQ, helped mainly by growth in fee income, namely credit cards, transaction banking and bancassurance.

Source: RHB Research - 28 Jul 2022