Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with an unchanged fair value (FV) of RM6.70/share, pegged to FY23F P/BV of 1.0x based on an ROE of 10.3%. No change to our neutral 3-star ESG rating.

• 9MFY22 earnings were within expectations, accounting for 77.7% of our estimate. Meanwhile, it was above consensus, making up 87.5% of street forecast.

• Hence, we tweaked our FY22F/23F/24F earnings by +0.1%/+0.7%/+0.1% after adjusting loan growth and net interest margin (NIM) assumptions.

• 9MFY22 underlying net profit rose by 20% YoY to RM4.7bil, supported by stronger NII from loan and interest margin expansion in Malaysia and Singapore, higher NOII from fees, commission and NPL recoveries. Also, the improved earnings were driven by lower total provisions of 29.5% YoY.

• 3QFY22 core earnings rose to RM1.6bil (+6% QoQ) after stripping out an exceptional item net of tax and minority interest (MI) of RM6mil, the impact of Cukai Makmur of RM219mil and modification gain. 3QFY22 saw improved net interest income (NII) from loan and net interest margin (NIM) expansion, partially offset by lower non-interest income (NOII) and higher loan impairment allowances.

• Gross loan growth picked up pace to 9% YoY, contributed by stronger momentum from wholesale banking. Also, the improvement was contributed by a faster pace of consumer and commercial banking loans in 3QFY22.

• In 3QFY22, the group’s NIM rose by 8bps QoQ to 2.55%, contributed largely by improved interest margins in Malaysia (+7bps), and Singapore (+20bps) and Indonesia (+14bp), which deployed excess liquidity into growing loans for Niaga. Nevertheless, the improved margins in these markets were partly offset by weaker NIM in Thailand (-7bps QoQ) due to the pressure in funding cost. For Malaysia, on a full-year impact, every 25bps increase in OPR will lift the group’s NII by RM80mil and NIM by 2bps. CASA growth was flat at 0.3% QoQ, contributed by the slowdown of retail deposits in Malaysia. This consequently led to a lower CASA ratio of 41.7%.

• Underlying opex for 9MFY22 was well contained at +2.8% YoY. 4QFY22 OPEX is likely to be higher due to an increase in IT and staff cost. The CI ratio improved marginally to 46.1% for 9MFY22.

• In 3QFY22, loan loss provisions rose by 7% QoQ due to the increase in loan impairment allowances for Malaysian commercial loans on prudent basis, the top up of provisions for a legacy corporate loan in Indonesia coupled with higher underlying provisions for consumer loans in Malaysia. For 9MFY22, loan impairment allowances fell by 35.1% YoY due to lower provisions raised through the revision of macroeconomic factors (MEFs), overlays, Covid-19-related provisions in Malaysia and the drop in underlying provisions for commercial loans in Indonesia as well as consumer segment in Thailand and Indonesia. 9MFY22 credit cost of 42bps was lower than the guidance of 50–60bps for FY22F.

Source: AmInvest Research - 1 Dec 2022