Again, CIMB sounded cautiously optimistic and core operational trends in 4Q22 are performing to expectations. Hence, our FY22-24 forecasts were unchanged. In the upcoming quarterly results, we will likely observe NIM expansion, steady loans and better NOII growth, on sequential basis. However, higher NCC would limit financial performance. Overall, we still believe CIMB’s risk-reward profile is balanced, since share price has performed strongly over the past one year and there are no new positive catalysts to drive it significantly higher. Retain HOLD and GGM-TP of RM5.85, based on 0.92x FY23 P/B.
Yesterday, CIMB held a pre-closed period conference call. Discussions were around its broad operational trends in 4Q22. We summarize the key-takeaways in this report.
4Q22 NCC to rise QoQ. According to management, asset quality trend is performing to their expectations. We understand delinquency in 4Q22 climbed sequentially at the consumer segment (staying just a tad lower vs pre-pandemic level) but the non-retail business did not experienced any significant movement. However, as guided, we can expect net credit cost (NCC) to rise QoQ given: (i) additional management overlays, (ii) higher loss allowances for the Malaysia non-retail portfolio, and (iii) provision top up for a legacy Indonesian steel company. Overall, FY22 NCC is still expected to land in between 50-60bp (9M22: 43bp). Besides, CIMB’s intention is to retain its loan loss coverage (LLC) level at 90-100% (9M22: 99.9%).
Sequential top-line growth in 4Q22. Cost of funding has risen in 4Q22 vs 3Q22, no thanks to: (i) fierce deposits rivalry, (ii) repricing of matured deposits, and (iii) seasonal year end competition in the wholesale money market space. Despite these drags, net interest margin (NIM) is seen to expand QoQ given a larger offset from: (i) favourable lag in the interest bearing asset-liability repricing at Singapore along with (ii) excess liquidity deployment and positive effective interest rate (EIR) adjustment at Indonesia. CIMB reckons its NIM may have potentially peaked in 4Q22. Separately, we gathered that loans growth is still chugging along nicely (9M22: +9.0% YoY). As for non-interest income (NOII), it is expected to grow QoQ, on the back of better wholesale business related fees, trading and forex performance.
Other findings. Despite intense deposit competition, CIMB is of the view that there is no liquidity shortness in the market. Besides, management intends to stay away from irrational price rivalry and employ a deposit-led strategy, which would not aggressively pursue loans growth at the expense of higher funding cost. That said, CIMB sees two more overnight policy rate (OPR) hikes in 2023. As for the percentage of borrowers who have graduated from the rescheduling and restructuring program but are missing payments, it remains largely unchanged at 6%. Lastly, on cost front, it is expected to increase quicker in 4Q22 on the back of bonus expense adjustment and new projects going live (9M22 cost-to-income ratio: 46.1%).
Forecast. Unchanged since there were no significant updates from the briefing. Also, underlying operational trends in 4Q22 are performing according to expectations.
Retain HOLD and GGM-TP of RM5.85, based on 0.92x FY23 P/B with assumptions of 9.4% ROE, 9.9% COE, and 3.0% LTG. This is largely in line to its 5-year and sector mean of 0.85-0.89x; we feel the valuation is fair given its ROE output is similar to pre pandemic level and industry average. Overall, we still believe that CIMB’s risk-reward profile is balanced, considering share price has performed strongly over the past one year and there are no new positive catalysts to drive it significantly higher.
Source: Hong Leong Investment Bank Research - 27 Jan 2023