• Stay BUY with a higher MYR7 TP from MYR6.50, 21% upside and c.4% yield. CIMB’s 9M22 results exceeded our expectations, mainly on lower-than- expected provisions. Key standouts in 3Q22 were continued acceleration in loan growth, improving operating leverage, and benign credit cost. Management maintained FY22 ROE guidance at 8-9%, but expressed confidence the target can be exceeded. Stock trades at an undemanding 1x P/BV against FY23F ROE of 10%.

• 9M22 results above our expectations. 3Q net profit of MYR1.41bn (+10% QoQ) took 9M22 earnings to MYR4.11bn (+19% YoY), accounting for 85% and 76% of our and Street’s FY22F earnings. Excluding exceptional items and Cukai Makmur, 9M22 core earnings were MYR4.73bn (Figure 1 and Figure 2), up 23% YoY. Reported ROAE of 9.1% is tracking guidance of 8- 9%, while its CET-1 ratio was stable at 14.1%.

• Loan growth continued to accelerate, rising 3% in 3Q22 vs +2.5% in 2Q22, +1.8% in 1Q22 and +1.5% in 4Q21. The loan expansion was led by lending in consumer and wholesale segments in Malaysia and Indonesia. With growth at 9.9% (annualised) in 9M22, management raised its FY22 loan growth target for a second time to 8-9% from 6-7% (revised in August).

• NIM guidance unchanged. In 3Q22, NIM rose 8bps QoQ to 2.55% on expansions in Malaysia and Singapore. Management believes NIM has peaked in 3Q22, as deposit competition has intensified, and will likely see margins moderating in 4Q22. CASA ratio has eased to 41.7% from a peak of 43.5% in 1Q22. Hence, CIMB is sticking with its guidance for a 5bps NIM enhance in FY22F (9M22: +4bps YoY to 2.50%).

• Meaningful reduction in provisions. Total provisions rose 6% QoQ in 3Q22, mainly on a 7% increase in loan impairments in Malaysia and provision top up in Indonesia. This nudged loan credit cost to 43bps in 9M22 (1H22: 41bps). With GILs up a modest 1.3% QoQ, GIL ratio was relatively stable at 3.49% while LLC stayed at 99.9%. Notwithstanding the benign asset quality, CIMB is maintaining FY22F credit cost guidance at 50-60bps. Management wants a higher LLC and would likely take the opportunity to top up provisions in 4Q22. Cumulative allowances for prudential macroeconomic factors (MEF) and overlays are stable at MYR2.7bn at end-3Q22.

• CIR improving. Cost-saving initiatives continued to gain traction, resulting in positive jaws and CIR trending lower to 46.1% in 9M22; this compared with the CIR guidance of <48% for FY22. Management has identified MYR441m in cost savings that would crystallise in FY23.

• Earnings and TP. We raise FY22-24F net profit by 2-5% after pencilling in stronger loan growth and lower opex (Figure 4). Our TP rises to MYR7 from MYR6.50, based on an intrinsic value of MYR6.98 (GGM-derived 1.1x P/BV). Due to CIMB’s ESG score of 3.0 out of 4.0 – on par with our country median – the ESG premium/discount is 0%. The ESG score is derived based on our proprietary in-house methodology.

Source: RHB Research - 1 Dec 2022