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Reiterate BUY, new MYR6.50 TP from MYR6.40, 21% upside with c.4% yield. CIMB’s 1H22 results beat expectations, mainly on lower-than-expected provisions. Management raised its ROE guidance to 8-9%, with the stronger growth to be supported by more upbeat loan growth targets, lower credit cost and further improvement in the CIR. With asset quality issues addressed, the growing traction in ROE recovery should translate to a positive share price re- rating, in our view.
1H22 earnings above. 2Q net profit of MYR1,281m (-10% QoQ, +18% YoY) lifted 1H22 earnings to MYR2.7bn, making up 56% and 53% of our and Street FY22F earnings. Excluding exceptional items and Cukai Makmur, 1H22 core earnings were MYR3,097m (Figures 1 and 2), up 18% YoY. Reported ROAE of 9.1% is above the FY22F target of 7.5-8%, while its CET-1 ratio was at a solid 14.1%. A first interim DPS of 13 sen was declared (50% payout ratio).
Loan growth continued to gain pace, rising 2.5% in 2Q22 vs +1.8% in 1Q22 and +1.5% in 4Q21. Having reshaped its loan portfolio, management is now focused on accelerating loan growth in the consumer and commercial segments in Malaysia and Indonesia. With growth at 8.6% (annualised) in 1H22, management raised its FY22 loan growth target to 6-7% from 5-6%.
NIM guidance stays. The pick-up in loan growth and Overnight Policy Rate (OPR) hike in May, have led to a gradual QoQ rise in NIM. With 1H22 NIM at 2.46%, or 5bps higher than FY21’s 2.41%, management reiterated its guidance for a similar 5bps improvement for FY22 as it expects the cost of funds to tick up on attrition of CASA deposits and higher fixed deposit rates.
Meaningful reduction in provisions. Total provisions rose 14% QoQ in 2Q22, mainly on MYR141m booked for prudential macroeconomic factors (MEF) and overlays. Still, loan credit cost was a lower 41bps in 1H22 (1H21: 74bps) due to the sharp decline in COVID-19- and legacy-related provisions, as well as writebacks in Singapore. The GIL increase of 5.2% YTD June is within expectations, given the expiry of relief assistance. With asset quality stabilising, credit cost guidance has been lowered to 50-60bps from 60-70bps. Management overlays have increased to MYR2.7bn (1Q22: MYR2.5bn).
Structured cost take-out bearing fruit. Having (in 2021) identified MYR410m in cost savings that will crystallise in FY22, management had – in 1H22 – quantified cost savings initiatives for another MYR24m in the Malaysia consumer business. The good traction in cost take-outs has led to a lower CIR guidance of <48% (from <49%), which remains conservative against the 46.5% achieved in 1H22.
Earnings and TP. We raise FY23-24F net profit by 3-4% while FY22F earnings are unchanged (Figure 5). Our TP ticks up to MYR6.50 from MYR6.40, based on an intrinsic value of MYR6.42 (GGM-derived 1.05x P/BV). Due to CIMB’s ESG score of 3 out of 4 – on par with our country median – the ESG premium/discount is 0%. The ESG score is derived based on our proprietary in-house methodology.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....