The Group reported another strong set of quarterly numbers, with 3QFY22 net profit of RM1.41bn (+>100% YoY, +9.9% QoQ) contributing to a cumulative 9MFY22 net profit of RM4.14bn (+19.6% YoY) which beat both our and consensus estimates at 85% and 80% of full-year forecasts respectively. A major factor has been the robust expansion in its loans book, underpinning healthy income growth amid this rate hike cycle. While we continue to err on the side of conservatism and keep loan loss provision assumptions elevated, we nevertheless raise FY22-FY24 estimates by ~12% on average to factor in a higher loans growth assumption. We continue to remain optimistic over CIMB’s longer-term prospects, underpinned by its F23+ initiatives and retain our Outperform call with a raised target price of RM6.70 (RM6.00 previously) due to the earnings lift.

• Operating income remained strong, with a cumulative RM14.6bn (+6.2% YoY) for 9MFY22 driven by robust loans growth and margin expansions, notably in Malaysia and Singapore. By business segment, stronger consumer banking contribution (+8.5% YoY) is attributed to healthy loans growth (+9.1% YoY), fee income improvement and lower loan loss provisions (due to reduction in overlays).

• Net interest margin (NIM) jumped 8bps higher QoQ (+4bps YoY) as it continues to benefit from the current rate hike cycle, though the expectation is that margins are likely to have peaked in 3QFY22. Management retains its view of a +5bps improvement to NIM this FY22.

• Loans growth (+9.0% YoY, +3.0% QoQ) has been robust, with headway being made in all its key markets and business segments. Major drivers are the wholesale banking business (+9.7% YoY) in the area of working capital loans (+19.7% YoY), and the consumer banking business (+9.1% YoY) in the areas of mortgages (+9.0% YoY) and hire purchase (+11.9% YoY). Management is now guiding for an 8%-9% overall growth this FY22.

• Asset quality. Cumulative 9MFY22 provisions are lower by 29.5% YoY due to lower overlays and a decline in non-retail provisions and write-backs. Management has however suggested that more provisioning top-ups may be undertaken in 4QFY22, though they also indicated that the cumulative RM2.7bn in MEF and overlays should be sufficient to mitigate any significant deterioration in asset quality. Loan loss charge is 48bps (2QFY22: 49bps), with management maintaining its loan loss charge guidance of 50bps-60bps for FY22. Gross impaired loans is unchanged at 3.5% (2QFY22: 3.5%), and allowance coverage at 99.9% (2QFY22: 99.6%) which management has suggested it is looking to raise further

Source: PublicInvest Research - 1 Dec 2022